APAC Economic Comment "BI and BSP: Follow-up hikes, calibrated signal" Lim

Research evidence excerpt

APAC Economic Comment "BI and BSP: Follow-up hikes, calibrated signal" Lim

Inflation outlook still elevated, return to target in 2028

On the inflation front, the BSP continues to see an elevated outlook, with forecasts

revised marginally higher to 6.4% (Prev: 6.3%) for 2026 and 4.5% (Prev: 4.3%) for

2027, alongside a new projection of 3.1% for 2028. Inflation is therefore expected to

remain above the 3% ±1pp target range through 2027, only returning to target by

2028. The central bank highlighted persistent global supply shocks, emerging second-

round effects, and the spectre of a "super El Niño" as key risks, while reiterating

readiness to act further to ensure inflation converges back to target. Peso dynamics

remain relevant, with depreciation seen as adding to inflation via import prices,

although a stronger peso is not viewed as symmetrically disinflationary. Overall, the BSP

maintains a vigilant stance, signalling that the tightening cycle has further room to run,

with the pace and magnitude of future moves remaining data dependent amid

continued uncertainty. We maintain our forecast of one more 25bp rate hike at its

August policy meeting.

Relief from Hormuz risk, but not a bull market for IDR and PHP

Our strategist suggested that despite the reprieve and tactical upside in a full SOH

reopening, we remain defensive on IDR and PHP over the medium term and would look

to fade on overshoots. While residual Hormuz discount could still unwind, we do not see

this as a structural turning point. The underlying drags remain intact - policy uncertainty

in IDR, and the Philippines’ twin deficits. If the flow of energy through SOH indeed

normalises by July, USDIDR, USDPHP could fall another 2% amidst elevated risk