Standard Chartered now expects Bangko Sentral ng Pilipinas (BSP) to keep its policy rate unchanged at the 27 August meeting, reversing its earlier call for a 25 bps increase. The bank still sees policy staying tight in tone, with BSP rhetoric expected to remain hawkish even if rates are left on hold.
The bank continues to forecast 25 bps of rate cuts in Q2-2027 and Q3-2027, contingent on inflation easing to below 4% in Q2-2027. In line with that path, it cut its end-2026 policy rate forecast to 4.75% from 5% and trimmed its end-2027 view to 4.25% from 4.5%. On the macro side, it lowered its 2026 GDP growth forecast to 3.5% from 4.0% after softer H1 activity, and revised down its 2026 CPI inflation estimate to 5.9% from 6.5% on cooler inflation readings so far.
Implications for Interest Rates and Derivatives Strategies
With the Bangko Sentral ng Pilipinas (BSP) expected to keep its policy rate steady at the upcoming August 27 meeting, we believe derivative traders should pivot their short-term strategies. The shift away from a previously expected 25-basis-point hike suggests that local interest rates have likely peaked for the year. This pause is well-supported by recent data, as Philippine inflation eased to 4.2% in July 2026, down from the higher levels seen earlier this year.
We recommend that traders position for a flattening yield curve by utilizing short-term interest rate swaps (IRS). Since the BSP is projected to hold rates steady before eventually cutting them by 50 basis points in 2027, locking in current yields now offers a favorable setup. Historically, during similar BSP pause cycles, two-year swap rates have tended to drift lower ahead of actual policy easing, making receive-fixed positions attractive.
Currency Outlook and Fixed-Income Opportunities
In the currency markets, we expect the Philippine Peso to face mild downward pressure as local GDP growth forecasts are downgraded to 3.5%. Entering USD/PHP forward contracts or buying call options would be a practical way to hedge against this slower economic momentum. While the BSP will likely maintain hawkish rhetoric to support the currency, the reality of weaker growth will limit any significant Peso strength in the coming weeks.
For fixed-income derivative portfolios, we suggest going long on Philippine government bond futures. Local ten-year bond yields, which hovered around 6.2% last quarter, are poised to decline as inflation expectations for the year drop to 5.9%. This downward trend in yields will drive bond prices higher, offering solid capital gains for traders who position early.
