SURGING inflation could prompt the Bangko Sentral ng Pilipinas (BSP) to end an easing cycle and raise key interest rates this week, analysts said.
Five of nine economists polled by The Manila Times expect the central bank’s policymaking Monetary Board to raise the policy rate by 25 basis points to 4.5 percent on Thursday following an off-cycle decision last month to keep the rate unchanged amid the energy crisis.
Inflation accelerated to 4.1 percent in March, breaching the BSP’s 2.0- to 4.0 percent target, from just 2.4 percent a month earlier as fuel prices skyrocketed due to the war in the Middle East.
The central bank last month raised its inflation forecast for 2026 to 5.1 percent from 3.6 percent and BSP Governor Eli Remolona Jr. has said that monetary authorities were taking a “wait-and-see” stance amid heightened uncertainty.
Surging prices
Union Bank of the Philippines chief economist Ruben Carlo Asuncion said the “upside [inflation] surprise increases the risk of second‑round effects and a de‑anchoring of inflation expectations, particularly amid food price pressures and peso‑driven imported inflation.”
“We expect the BSP to raise the policy rate by 25 bps at its upcoming meeting, following the sharp surge in March inflation,” Asuncion said.
With risks skewed to the upside, he added that inflation could top the target this year at 5.0 percent.
Bank of the Philippine Islands lead economist Emilio Neri Jr. also warned that inflation could easily average above 5.0 percent, with monthly readings potentially nearing 8.0 percent if Dubai oil prices stay persistently above $100 per barrel.
“Despite recent ceasefire developments, the Strait of Hormuz remains operationally constrained, with only around 14 vessels currently transiting compared with an average of roughly 120 pre-conflict,” he noted.
“We expect the BSP to deliver a 25bps policy rate hike on April 23, as the balance of risks has shifted toward a more persistent and broad-based inflation environment.”
HSBC Global Research economist Aris Dacanay said the central bank would likely prioritize its “battle against inflation” and raise the policy rate by a quarter point.
“The length of the tightening cycle depends primarily on how long the conflict in the Middle East persists,” he added.
Security Bank Corp. chief economist Angelo Taningco also said the “sharp Philippine peso depreciation, which tends to contribute to inflationary pressures via making imports more expensive” could warrant a rate hike on Thursday.
“Rising inflation expectations” will also be a key factor in this week’s policy decision, he added.
Rizal Commercial Banking Corp. chief economist Michael Ricafort said that with inflation already above target, rate hikes were likely to bring it back within the 2.0- to 4.0-percent range.
He added that this would help keep prices stable and manage inflation expectations, even if current pressures were mostly driven by external and supply-side factors beyond the country’s control.
Wait and see
Four economists, however, believe the central bank should keep rates steady and be more cautious in its policy decisions.
Chinabank Research said the BSP was likely to adopt a prudent wait-and-see approach, “as global conditions remain highly uncertain, particularly amid ongoing geopolitical risks, ceasefire developments, and oil and gas supply disruptions.”
“Domestically, inflationary pressures continue to be driven largely by volatile supply-side factors, while demand conditions are showing signs of softening, reducing the case for immediate monetary tightening,” it said.
ING Economics, meanwhile, said the Philippines remains among the most oil-exposed economies in the region.
“Against this weaker growth backdrop — and assuming the current geopolitical escalation eases in the near term — our base case is for the central bank to remain on hold in April,” it said.
Standard Chartered Bank Asia economist Jonathan Koh said the BSP will likely be hesitant to raise rates in response to supply-driven inflation, where monetary policy has limited effect.
“We do not remove our rate hike call completely but just delay it to the next meeting,” he said.
“Inflation pass‑through is likely to pick up in coming months, driven by faster fiscal spending, possible transport fare hikes, higher rice and food prices, and PHP (peso)‑driven imported inflation, which could eventually prompt a one‑off rate hike to safeguard price stability,” he added.
Philippine National Bank economist Alvin Arogo said raising financing costs now appeared inconsistent with the earlier decision to provide loan relief, especially amid output constraints caused by the supply shock.
“The pandemic experience also showed strong government spending still resulted in a recession despite aggressive government spending,” he said.
“Thus, monetary tightening this soon could seriously put at risk prospects for growth recovery without doing much dent on inflation.”
