Nomura Sees 60% Chance of BSP Rate Hikes

Why It Matters

Higher rates could curb inflation but risk deepening the Philippines’ weak growth, affecting investors, borrowers, and the broader Asian economy. The outlook underscores the delicate balance between price stability and economic recovery.

Key Takeaways

• Nomura assigns 60% probability of BSP rate hikes in 2026.
• First 0.5‑point increase could occur at April 23 meeting.
• BSP may raise key rate to 4.75% before easing in 2027.
• Philippines growth forecast cut to 5% amid stagflation risk.
• Inflation outlook lifted to 4.9%, above BSP’s 2‑4% target.

Pulse Analysis

The Philippines is confronting a classic stagflation dilemma as oil price spikes from the Middle East conflict feed into domestic inflation. Domestic consumer prices have already nudged above the Bangko Sentral ng Pilipinas’ (BSP) target band, prompting the government to declare a national energy emergency. While the central bank has so far held its benchmark at 4.25%, the surge in fuel costs threatens to spill over into broader goods, eroding real wages and pressuring households already strained by a recent corruption scandal.

Nomura’s latest market note adds a quantitative edge to the narrative, assigning a 60% likelihood that BSP will tighten policy by up to 0.5 percentage point this year. The firm foresees an initial 0.25‑point hike at the April 23 meeting, followed by a second move that could lift the policy rate to 4.75% by Q3. These measured increases aim to anchor inflation expectations, yet they come as the bank trims its 2026 growth forecast to 5% and raises its inflation projection to 4.9%, well above the 2‑4% target range. The dual pressure of higher borrowing costs and subdued demand could dampen investment and consumer spending, intensifying the stagflation risk.

Looking ahead, Nomura expects BSP to unwind the tightening starting in 2027, with an anticipated 75‑basis‑point easing cycle. This forward‑looking stance suggests the central bank believes inflationary pressures will subside once global oil markets stabilize and fiscal constraints ease. For investors, the timeline of rate moves offers a roadmap for positioning in Philippine bonds and equities, while businesses must navigate tighter credit conditions in the near term. The interplay between monetary policy, energy volatility, and fiscal health will shape the Philippines’ growth trajectory over the next two years.