The Bangko Sentral ng Pilipinas (BSP) raised the target reverse repurchase rate (RRP) in its April monetary board meeting to 4.50%.

Key points
 

• According to BSP Governor Eli M. Remolona Jr., the decision to deliver a 25-basis-point rate hike is anchored on bolstering inflation expectations which have shifted to the upside.
• Citing upside risks from elevated global oil and fertilizer prices, the BSP revised its inflation forecast for full year 2026 to 6.3 % and for full year 2027 to 4.3%.  
• The BSP chief affirmed that once the BSP delivers a rate hike, it is likely to continue raising its policy rate.
• Remolona said the monetary policy environment should remain accommodative to economic growth.

What now?

• In line with the BSP’s higher inflation expectations, Metrobank maintains its view that inflation for 2026 will breach the BSP’s 3±1% target for the year. 
• We also maintain our forecast that the BSP will hike by a cumulative 50 basis points this year, bringing the target RRP to 4.75% by year-end.
• Stay defensive in the 2- to 5‑year sector of local fixed income assets amid foreign exchange‑driven volatility and upcoming supply, adding when there is a better yield premium. Higher inflation expectations and another possible rate hike may contribute to potential further steepening for longer tenors.
• Given the rate hike, favor disciplined trading within predictable ranges for USD/PHP. Sell US dollars on strength at 60.30–60.50, and buy back near 60.00–59.70.  
• While higher rates may pose some valuation headwinds, the overall strategy for local equities is to maintain a cautiously constructive outlook. We recommend leaning toward banks, defensive names, and high-quality index stocks that could benefit from improved macro confidence and a possible relief rally.