Nomura warns that a government catch‑up spending surge could sustain Philippine economic growth, paving the way for another BSP rate hike later this year despite lingering inflation pressures.
The Bangko Sentral ng Pilipinas (BSP) is expected to deliver another rate hike this year, with catch‑up spending projected to keep growth on track. Nomura’s latest outlook ties fiscal recovery directly to the central bank’s tightening roadmap.
After Thursday’s 25‑basis‑point increase, the bank signaled confidence that fiscal policy will now back economic expansion.. Governor Eli Remolona Jr.. hinted that the recent scandal over flood‑control projects has cleared the way for smoother public‑sector spending.. Data from the budget office show utilization climbing to 98.5 % in the first quarter, a notable jump from February’s 87 % and only slightly below the same period last year.
Nomura foresees the BSP pausing its policy meeting in June before adding another 25 bps in August, taking the policy rate to 4.75 %.. The firm argues that once the government’s catch‑up spending gains momentum, GDP growth should rebound, granting the central bank room to tighten further.. However, the outlook remains fragile: inflation is still expected to hover above the 2‑4 % target range, and any surprise on the upside could force the BSP to act more aggressively.. Energy price volatility, tied to developments in the Middle East, is flagged as the primary risk to the forecast.
Government spending picks up
The surge in fiscal outlays stems from the administration’s effort to erase the backlog created by last year’s corruption scandal.. By accelerating infrastructure projects and social programs, the government hopes to stimulate demand and restore confidence among private investors.. This “catch‑up” approach is not new; similar spending drives have historically helped the Philippines rebound after fiscal setbacks, as seen after the 1997 Asian financial crisis.
From a household perspective, the renewed spending translates into more jobs on construction sites and quicker delivery of public services.. Residents in Manila’s outskirts, for instance, have reported a noticeable increase in activity near new road projects, with the hum of machinery becoming a daily soundtrack.. Such tangible signs of recovery can boost consumer sentiment, encouraging higher spending that further fuels growth.
Inflation outlook and policy outlook
While the BSP’s recent forecast hikes for 2026 and 2027—now at 6.3 % and 4.3 % respectively—underscore lingering price pressures, the central bank remains focused on anchoring inflation expectations.. Nomura warns that any sustained rise in energy costs could erode this anchor, prompting the BSP to accelerate rate hikes beyond the projected August move.. Analysts suggest that the bank’s communication strategy will be critical; clear messaging can temper market speculation and keep borrowing costs predictable.
Looking ahead, the interaction between fiscal stimulus and monetary tightening will shape the Philippines’ economic trajectory.. If catch‑up spending successfully lifts GDP without reigniting inflation, the BSP may adopt a measured path, spacing out future hikes.. Conversely, a spike in global oil prices or domestic supply chain bottlenecks could force the bank into a more aggressive stance, potentially unsettling investors.
Overall, the confluence of stronger public‑sector spending and vigilant monetary policy positions the Philippines at a pivotal juncture.. The next few months will reveal whether the economy can sustain growth while keeping inflation in check, a balance that will determine the pace and timing of any further BSP rate hikes.