‘BSP credibility on the line as inflation fight drags on’

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June 18, 2026 | 12:00am

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) faces a bigger challenge than deciding whether to raise interest rates by 25 or 50 basis points at this week’s policy meeting, preserving the credibility of its inflation-targeting framework.

GlobalSource Partners country analyst Diwa Guinigundo said the central bank’s ability to anchor inflation expectations has become as important as the level of interest rates it sets.

 “Whether the BSP ultimately chooses a 25-basis-point or 50-basis-point increase is therefore less important than the message accompanying the decision,” the former BSP deputy governor said.

“The critical task is to demonstrate a clear commitment to returning inflation to target within the policy horizon. Households, businesses and financial markets must remain confident that the BSP will do whatever is necessary to restore price stability,” Guinigundo said.

The BSP’s Monetary Board is scheduled to meet today amid persistent inflation pressures and slowing economic growth.

Inflation eased to 6.8 percent in May from 7.2 percent in April, marking the first slowdown in five months. However, the latest reading remained well above the BSP’s two to four percent target. Core inflation, which strips out volatile food and energy items, accelerated to 4.1 percent in May from 3.9 percent a month earlier.

For Guinigundo, the slower inflation print has given the BSP more room to calibrate policy, reducing the need for an off-cycle meeting or an emergency response. But it does not rule out the need for additional monetary tightening.

 Still, he cautioned that the choice between a 25-basis-point and a 50-basis-point increase carries important signaling effects.

A larger increase would underscore the BSP’s resolve to stay ahead of inflation, but it could also be viewed as an acknowledgment that policymakers should have tightened earlier.

 “Had the BSP acted more decisively in December 2025, or raised rates during its February and April meetings, it might have avoided the need for stronger action today,” Guinigundo said.

 “Monetary policy is often judged not only by the decisions made but also by the opportunities missed,” he added.

 The economist said the case for maintaining a restrictive stance remains strong even if inflation has been largely driven by supply shocks.

 “Monetary policy cannot directly increase food supply or reduce global oil prices, but it can prevent temporary supply shocks from becoming entrenched inflation,” he said.

According to Guinigundo, second-round effects are beginning to emerge through calls for wage increases, transport fare adjustments and higher electricity rates, while the rise in core inflation suggests that price pressures are becoming more broad-based and persistent.

 The former BSP official also pointed to lingering geopolitical tensions, elevated fertilizer prices and higher rice costs as risks that could keep food and energy inflation elevated. Domestic political tensions and institutional disputes likewise add uncertainty to the outlook, potentially affecting market sentiment and inflation expectations.

For Guinigundo, the greatest danger is allowing inflation expectations to become detached from the BSP’s target.

“Once inflation expectations become unanchored, restoring confidence often requires substantially more aggressive policy action,” he said.

“All up, therefore, the BSP’s challenge is no longer merely to lower inflation. It is to preserve the credibility of the inflation-targeting framework itself,” he added.