RISING inflation could push the Bangko Sentral ng Pilipinas (BSP) to raise its policy rate by a quarter-point later this month, Citi Philippines said.
The country, it said, “faces the prospect of both higher inflation and demand destruction.”
“We maintain our call for a 25bps (basis point) BSP rate hike in April, followed by a pause given the high uncertainty,” it added.
Consumer price growth hit a 20-month high of 4.1 percent last month, breaching the central bank’s 2.0- to 4.0-percent target, as fuel prices surged in the wake of the US-Israeli war on Iran.
Worries over the inflation path prompted the BSP’s policymaking Monetary Board to keep key interest rates unchanged during an off-cycle meeting last month.
The scheduled April 23 policy meeting will proceed and BSP Governor Eli Remolona Jr. has said that the pause could be extended to allow monetary authorities to further assess the impact of the Middle East war.
Citi noted that broadening inflation pressures underscore mounting risks to the outlook, particularly as a global energy shock feeds through domestic prices.
It now expects the shock to contribute about 2.8 percentage points to inflation in 2026. Under a base-case scenario, oil prices are projected to peak at around $120 per barrel early in the second quarter before easing to about $75 by the fourth quarter.
With this trajectory, inflation in the Philippines could peak at around 7.0 percent in the second to third quarters and average 5.7 percent for 2026. Citi said second-round effects could persist even after energy prices begin to moderate.
In a more adverse scenario where Brent crude peaks at $150 per barrel in June and only eases to $100 by the fourth quarter, inflation could rise to nearly 9 percent and average 6.6 percent for the year.
The rate is expected to fall back to around the 3-percent range in 2027 under both scenarios, although Citi said stronger demand destruction in the higher oil-price case could lead to lower inflation toward end-2027.
The bank also trimmed its 2026 economic growth forecast for the Philippines to 4.0 percent from 4.5 percent, citing reduced purchasing power from higher prices. Citi warned that consumption growth could experience a “double-dip” in the second quarter, similar to episodes during the 2022 and 2008 energy price surges.
Despite the risks to growth, Citi said the BSP was likely to prioritize anchoring inflation expectations in the near term. The central bank may also respond to potential peso weakness arising from a wider current account deficit driven by a higher oil import bill.
“We think the policy response of the BSP ... will take into account the sequence in which these shocks hit,” Citi said. “In the short term, BSP’s initial response may be to manage inflation expectations and curb potential second-round effects.”
However, Citi cautioned against expecting a series of aggressive rate increases, noting that economic conditions differ from the previous tightening cycle.
“Real policy rates before the March ’26 energy shock were also still positive, versus negative in early 2022,” Citi said. “Further out, as demand destruction gathers pace, inflation risk should recede thereby opening the possibility of policy reorientation.”
