Standard Chartered Bank expects the Bangko Sentral ng Pilipinas (BSP) to raise interest rates by 50 basis points (bps) at its monetary policy meeting on Thursday as inflationary pressures stemming from the Middle East conflict continue to weigh on the local economy.

In a statement, Standard Chartered Bank Asia Economist and FX Analyst Jonathan Koh said elevated inflation—which stood at 6.8 percent in May—remains the central bank’s key policy concern despite slowing economic growth.

“We expect the BSP to hike the policy rate by 50 bps to 5.0 percent from 4.5 percent, as elevated inflation remains the key policy concern despite softer domestic growth,” he said.

“Continued PHP depreciation also reinforces imported inflation concerns and supports the BSP’s hawkish rhetoric.”

Headline inflation eased in May from April’s three-year high, driven by government-mandated fuel price rollbacks, relatively stable global oil prices, and lower costs for certain food items, housing, and utilities.

However, Koh said underlying price pressures remain “sticky” despite the month-on-month slowdown. He cited the looming El Niño season, potential disruptions to global oil supplies, and the peso’s continued weakness as factors clouding the country’s economic outlook.

“Near-term fuel price rollbacks should provide some disinflationary relief, but upside risks remain from higher energy prices amid the uncertain Middle East backdrop, as well as potential food-price pressures from El Niño and rising fertilizer costs,” Koh said.

The BSP raised its benchmark rate by 25 bps at its April 23 policy meeting, citing a worsening inflation outlook due to the energy shock’s impact on fuel, food, fertilizer, and transport costs. Since then, BSP Governor Eli M. Remolona Jr. has maintained a hawkish stance, saying the central bank will enact “as many hikes as necessary” to fulfill its price stability mandate.

Higher interest rates reduce liquidity in the economy by encouraging saving over spending, helping curb inflation but potentially weighing on long-term economic growth.

Standard Chartered joins a growing number of financial institutions calling for a more aggressive policy response from the BSP. The central bank has previously noted that the full spillover effects of an oil shock can take around six months to materialize.

Bank of the Philippine Islands (BPI) Lead Economist Emilio Neri Jr. has likewise forecast a 50-bps rate hike on Thursday, arguing that the BSP may need to adopt a stronger policy response given the economic damage caused by persistently elevated inflation and the peso’s continued weakness.

“The softer inflation print should be viewed less as an opportunity to delay rate hikes and more as a chance for the BSP to demonstrate its commitment to restoring price stability and counter perceptions that it is behind the curve on inflation,” Neri said.

Meanwhile, Koh expects the BSP to maintain its tightening bias through the rest of the year, projecting another 25-bps rate hike in August that would bring the policy rate to 5.25 percent by year-end.

Rizal Commercial Banking Corp. Chief Economist Michael Ricafort likewise expects the BSP to raise its key policy rate to at least 5.50 percent “to stay ahead of the curve, as well as to help stabilize the peso exchange rate against the US dollar and contain importation costs.”

The BSP’s Monetary Board is slated to announce its decision this Thursday, 18 June, in the afternoon.