Iran peace deal not enough to halt tightening in the Philippines and Indonesia
The desk sees that the Bangko Sentral ng Pilipinas (BSP) and Bank Indonesia are maintaining a tightening bias in response to persistent inflation risks, despite the recent peace deal in Iran and easing oil prices. Per the full note from ING, the BSP's 25bp rate hike reflects a cautious approach to anchoring inflation expectations while prioritizing second-round effects from ongoing oil price volatility. Similarly, Indonesia's policy adjustment seeks to stabilize the rupiah, though the effectiveness may be stymied by policy uncertainty. The current consensus is more bullish on EUR/USD, leaving it positioned for potential gains above the current trading level, absent any new negative catalysts from upcoming events.
What the desk is arguing
The desk frames this as a steady tightening bias from both the BSP and Bank Indonesia, underscoring the need to address inflationary pressures linked to oil prices and global supply conditions. The BSP's recent rate decision reflects a measured approach, anticipating further hikes aimed at curbing inflation without destabilizing financial markets.
Central bank indicators show a focused strategy; for instance, the BSP remains attentive to second-round effects on food and core inflation as significant drivers of consumer price levels. Inflation management appears paramount, with concerns that a retreat in oil prices might not be sustainable.
The alternative read would suggest that any significant drop in inflation might prompt a reconsideration of tightening measures sooner than expected, a scenario the desk currently doesn't prioritize.
Where it sits in our coverage
As for EUR/USD, our internal consensus target sits at 1.1700, with a range from 1.1200 to 1.2000 by December 2026. Specific firms such as hsbc (1.1700), deutschebank (1.1800), and bofa (1.1700) reflect a broadly bullish outlook on the pair for the near term.
This view aligns closely with industry expectations, while not positioned at either extreme of consensus, suggesting a balanced perspective on the outlook for EUR/USD.
How other firms see it
Firms like mufg and barclays are aligned with the broader bullish sentiment, sharing similar expectations of gradual upward momentum in EUR/USD, even as citi takes a contrarian stance with a more conservative view in the same period.
It's essential to observe how developments in the USD/JPY relationship may also affect sentiment in the EUR/USD trajectory, especially as the Bank of Japan continues to unwound its longstanding accommodative stance.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01BSP and Bank Indonesia maintain tightening biases amid inflation risks linked to oil prices.
- 02Increases in rates expected from BSP to stabilize inflation, albeit cautiously.
- 03EUR/USD consensus remains bullish with a target of 1.1700 despite mixed signals.
- 04Market dynamics may hinge on evolving USD/JPY conditions and their implications for EUR/USD.
Market implications
Watch for resilience in the EUR/USD above 1.1567 as it approaches key resistance levels. Any shifts in oil price dynamics or central bank rhetoric could alter the trading landscape significantly.
Risks to this view
Should inflation metrics show a meaningful decline or geopolitical developments lead to a significant drop in oil prices, the current tightening bias may need reassessment, potentially signaling a reversal in policy expectations.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Scotiabank | Bearish | 1.1200 |
Bank of America | Bearish | 1.1200 |
ANZ | Bearish | 1.1400 |
Older quick take Quick take 10:29 Indonesia Philippines Iran peace deal not enough to halt tightening in the Philippines and Indonesia The BSP's cautious 25bp rate hike underscores a steady tightening bias, with policymakers focused on second-round inflation risks even as oil prices ease. We expect further hikes from BSP, while FX gains may be used to rebuild reserves. Bank Indonesia's hike aims to stabilise the rupiah, but persistent policy uncertainty may limit its effectiveness Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Deepali Bhargava Regional Head of Research, Asia-Pacific BSP’s measured tightening bias amid persistent oil uncertainty The Bangko Sentral ng Pilipinas delivered a 25bp rate hike, in line with expectations, reinforcing its preference for steady, incremental tightening to anchor inflation expectations without unduly disrupting markets.
The tone remains cautious rather than alarmist. Policymakers are clearly not complacent about oil prices, viewing the recent oil price shock as potentially more persistent given ongoing uncertainty around supply normalisation even amid a ceasefire. That argues for maintaining a tightening bias, with small, same-direction moves preferred to preserve policy credibility while limiting volatility.
Second-round effects in focus; food and core inflation key While we do expect headline inflation to fall if the peace deal holds and oil prices are sustained at lower levels, the BSP’s focus is firmly on second-round effects rather than the initial supply shock. How food prices, and by extension core inflation, evolve will be key in assessing whether inflation pressures become more entrenched. In our view, global oil flows are expected to resume only gradually, and the need to rebuild depleted stockpiles could keep upward pressure on demand, leaving uncertainty around the durability of any price correction.
We expect Brent to average around USD 87/bbl in 3Q, still roughly 30% above pre-war levels. This could give some room for governments such as the Philippines, which did not heavily subsidise fuel, to roll back part of the earlier hikes. Gasoline prices in the Philippines have risen by around 40% since the start of the conflict; a 10% rollback could lower CPI by about 50bp, bringing our 3Q inflation forecast to 6.5%, still well above the 4% upper target.
As such, a more sustained and deeper decline in oil prices would be needed for the BSP to reconsider rate hikes. Maintain view of more hikes in the Philippines; PHP could continue to recover On the FX side, the BSP appears to recognise the asymmetry: while large depreciations can fuel inflation, currency appreciation offers only limited respite. The Philippine peso has already staged a relief rally following the peace deal, appreciating by around 1.8% over the past month.
Sources & References
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