The BSP rate outlook from BMI points to another 25-basis-point increase in December 2026, taking the Philippine central bank’s key rate to 5.75%. In its October 22 assessment, the Fitch Solutions unit raised its year-end forecast from 5.50%, citing persistent inflation and peso weakness after the Bangko Sentral ng Pilipinas increased rates by 50 basis points.
Key Takeaways
- BMI expects a further December increase, but that remains a research forecast rather than an announced BSP decision.
- Inflation and currency pressure underpin the tightening call, despite concerns about weak economic growth.
- BMI forecasts a shift to rate cuts late in 2027 if inflation falls below 4%.
Table of Contents
- BSP rate outlook reflects persistent inflation
- Peso weakness adds pressure for a December increase
- Weak growth could limit further tightening
- Conclusion
BSP rate outlook reflects persistent inflation
BMI said higher global energy prices, recent transportation fare increases and El Niño-related food pressures would keep the BSP inclined toward tighter policy. Its December forecast follows the central bank’s larger-than-expected October 22 rate increase.
“Persistent inflationary pressures should keep the BSP on a tightening bias,” BMI said. The firm expects inflation to remain above the 2%–4% target range through 2027, leaving the inflation-adjusted policy rate negative.
The target range also appeared in the BSP’s September 2025 inflation statement. That historical policy context is separate from BMI’s October 2026 forecasts and does not establish the outcome of the next rate decision.
| Item | Details |
|---|---|
| 2026 inflation forecast | BMI: 5.9%; BSP projection cited in the assessment: 6.1%. |
| 2027 inflation forecast | BMI: 5.4%; BSP projection cited in the assessment: 6.0%. |
| End-2026 policy-rate forecast revision | BMI raised its estimate by 25 basis points, from 5.50% to 5.75%. |
Peso weakness adds pressure for a December increase
The peso was trading near record lows at 63.50 per dollar when BMI released its assessment, despite the BSP’s 50-basis-point increase. BMI weakened its end-2026 exchange-rate forecast to 63 per dollar from 61, citing a more hawkish US Federal Reserve and higher oil prices.
BMI argued that another rate increase could help cushion currency pressure and limit imported inflation. A weaker peso raises the local-currency cost of dollar-priced imports, making the exchange rate relevant to the inflation outlook as well as financial markets.
The firm identified a decline beyond 64 pesos per dollar as a potential trigger for larger rate increases. It also flagged US-Iran tensions that could disrupt oil supplies and severe El Niño conditions that could lift food prices. These are risks to its forecast, not confirmed outcomes.
Weak growth could limit further tightening
BMI expects sluggish growth to discourage additional increases after December. It said elevated inflation and the cumulative effects of tighter monetary policy would weigh on household spending and investment.
The firm forecasts Philippine GDP growth of 4.5% in 2027, below the government’s 5%–6% target. It warned that tightening beyond its projected path could push growth further below that goal.
BMI’s expected turn toward easing depends on inflation peaking in the first quarter of 2027 and falling below 4% by the fourth quarter. Under that scenario, it projects 50 basis points of cumulative cuts late in the year, bringing the policy rate to 5.25%.
Conclusion
The next policy point to watch is the BSP’s December decision. BMI expects one more increase before a pause, but its projected path depends on inflation and the peso stabilizing enough to avoid more aggressive tightening.
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