Bangko Sentral ng Pilipinas (BSP) is expected to leave rates unchanged this week. But surely it won’t be long before the eventual hike. Public spending spurred strong investment growth in the economy. Investment growth has averaged 20 percent since 2015. And loan growth is currently back near its historical-highs of around 20 percent.

If the government manage to push through its tax reforms, expect the expansionary fiscal policy stance to be sustained in the medium-term. No surprise that core inflation trend remains tilted towards the upside. Core inflation is seen to average 3 percent this year, compared to 1.9 percent last year. At the same time, the current account balance has also slipped into a deficit.

Since April, the BSP seemed to be no longer tolerant of an excessive weakening of the unit. The BSP can be expected to raise its policy rate by 25 basis points to 3.25 percent at its meeting on August 10. If so, this will also be the first policy move under its new central bank governor.

"The BSP is expected to deliver another 25bps hike by year-end and pause till mid-2018. Thereafter, the risks for more hikes will depend on the success of the government’s infrastructure overhaul in generating demand," DBS Bank commented in its latest research report.