THE Philippine central bank said on Monday it could consider a stronger policy response if elevated inflation expectations become entrenched, vowing it “will take all necessary action” to ensure that inflation returns to target.
“If the data and our assessment of evolving risks point to higher inflation expectations becoming entrenched, then we may consider a stronger response,” the Bangko Sentral ng Pilipinas said in an emailed response to a Reuters query.
The BSP raised its key policy rate by 25 basis points to 4.5 percent in April.
Last month, BSP Governor Eli Remolona said in May the central bank was considering an off-cycle rate hike ahead of a scheduled meeting on June 18.
Annual inflation hit 7.2 percent in April, the highest in three years and well above the central bank’s 2.0- to 4.0-percent target. Data to be released this Friday is expected to show that the rate had risen further in May.
Inflation is being driven by a global energy shock caused by war in the Middle East and ANZ Research, in its latest Asia Macro Weekly report, said monetary policy was likely to remain the Philippines’ main weapon against rising prices.
Pre-existing weaknesses including weak growth, persistent fiscal deficits and deteriorating external balances had reduced the government’s capability to deploy the large-scale support measures that many neighboring countries are using to soften the impact of rising oil prices, ANZ said.
“Though most economies in the region are facing a deterioration in their terms of trade, a unique problem in the Philippines is that this deterioration has come amid high preexisting levels of current account and budget deficits,” the bank said.
“The resulting limited fiscal flexibility alongside other policy constraints to address high energy prices has disproportionately shifted the burden of inflation management to monetary policy,” it added.
ANZ said the impact of higher oil prices was now becoming visible in inflation, which previously was one of the more stable macroeconomic indicators.
It added that unlike several Asian economies that have implemented substantial fuel subsidies or price-support programs, the Philippines has limited fiscal resources available for such interventions.
Energy-related subsidies allocated for 2026 amount to only about P3 billion, ANZ said, equivalent to roughly 0.01 percent of gross domestic product (GDP). Most comes in the form of cash assistance for transport operators and farmers.
Energy subsidy programs in several other Asian economies, in comparison, range between 0.5 percent and 1.1 percent of GDP.
The longstanding policy constraints, ANZ said, were limiting direct intervention in energy markets.
While authorities have the legal authority to reduce or suspend excise taxes on fuel when global oil prices exceed certain thresholds, implementing such measures has proven difficult.
ANZ forecast inflation to average 6.2 percent this year, well above the 2.0- to 4.0-percent target, with quarterly inflation potentially peaking at 7.4 percent in the third quarter.
The bank also expects inflationary pressures to remain elevated due to rising food prices, particularly rice, a significant concern given the Philippines’ status as a net food importer.
ANZ, which expects two additional 25-basis-point interest rate increases from the BSP, said: “There is little debate over the direction of travel of monetary policy.”
“However, we stress that monetary policy tightening can only be effective if domestic demand compresses,” it added. “Unfortunately, for the Philippines, this will need to come from already weak levels.”
