THE case for an immediate rate hike in the Philippines is not yet strong, Citi Research said, even as rising global oil prices pose potential risks to inflation and the country’s external accounts.
In a commentary, Citi said it continues to expect the Bangko Sentral ng Pilipinas (BSP) to keep policy rates unchanged for an extended period despite recent remarks from Governor Eli Remolona Jr. of a rate hike if oil prices climb to $100 per barrel and the dollar strengthens sharply.
“The case for immediately hiking is not yet as compelling as during the 2022 oil shock, which led to rate increases totaling multiple percent,” Citi said.
“We maintain our base-case forecast for an extended BSP rate pause,” it added.
The central bank’s benchmark rate currently stands at 4.25 percent following a 25-basis-point cut last month. Its next rate-setting meeting will be in April.
Citi said current monetary conditions differed significantly from the situation during the previous oil shock. Real policy rates remain positive, it added, compared with negative real rates during earlier episodes of inflation pressure.
But if oil prices stay above $100 per barrel for several weeks, the central bank could consider one or two rate increases.
“Such [a] scenario would risk de-anchoring inflation expectations, thereby requiring a policy response,” Citi said.
Inflation could spike
Citi said that inflation could spike in the near term due to higher fuel costs linked to the war in the Middle East. Based on its estimates, fuel prices had risen by around 13 percent to 38 percent as of March 10 compared to end-February levels.
Assuming oil prices temporarily rise to the $80–$90 per barrel range for several weeks, Citi raised its combined March and April inflation forecasts by about 0.6 percentage points from its earlier projections.
Under this scenario, headline inflation could reach the upper end of the BSP’s 2.0- to 4.0-percent target range by April before easing and gradually settling at about 3.6 percent by the end of 2026.
Citi expects inflation in 2027 to remain within the central bank’s target, although likely in the upper half of the range, with average inflation around the 3.0 percent level.
The near-term increase in inflation forecasts reflects higher prices for fuel and liquefied petroleum gas as well as potential increases in electricity tariffs, partly driven by rising coal prices.
Under a more extreme scenario where Brent crude reaches $120 per barrel in the second quarter, Citi said a sharper inflation spike could occur, potentially requiring policy action from the central bank.
Economic recovery hurdle
“The ongoing oil shock presents a headwind for the recovery,” Citi said, noting that the implementation of a four-day workweek by the government could reduce mobility and affect retail sales.
“Incoming remittances could also be impacted if PH workers from the Middle East are repatriated as a result of the conflict,” it added.
Higher fuel costs may also test household purchasing power, as consumption growth slowed during the previous oil price surge in 2022.
Citi also flagged potential risks to the Philippines’ external balance if oil prices remain elevated. The trade deficit in mineral fuels — oil, gas and coal — amounted to about 3.4 percent of gross domestic product in 2025.
The deficit could widen to around 4.0 percent of GDP if current energy prices persist, which may weaken the balance of payments and put pressure on the peso.
