I LATIONARY pressures caused by high oil prices are pushing Asia Pacific (APAC) central banks to abandon policy easing and instead hike or keep interest rates on hold, Moody’s Ratings said.
“Across the APAC region, higher hydrocarbon costs will feed through to inflation, complicating central banks’ earlier efforts to loosen monetary policies,” the debt watcher said in a report on Monday.
“As a result, interest rates will stay higher for longer and, in some cases, can even increase where inflation expectations risk becoming unanchored,” it added.
Sustained disruptions in the Strait of Hormuz through the third quarter of 2026 could keep oil prices elevated at around $90 to $110 per barrel for much of the year, prompting central banks to maintain restrictive policy settings for longer.
The Philippines was identified as one of the more vulnerable economies in the region because of its dependence on imported energy and the government’s policy of allowing a significant pass-through of higher fuel prices to consumers.
“In April and May, central banks in Australia, Indonesia, the Philippines and Singapore tightened monetary policies in response to inflation risks,” Moody’s noted.
The Bangko Sentral ng Pilipinas (BSP) raised its key interest rate to 4.50 percent last April 23 to keep a lid on inflation. Its next policy meeting will be on June 18.
BSP Governor Eli Remolona Jr. last week said that rates could be raised ahead of schedule as the previous month’s hike “didn’t seem enough.”
Moody’s warned that persistently high fuel prices could erode household purchasing power and strain the cash flows of small and medium enterprises (SMEs), resulting in a gradual increase in credit stress for banks.
“Food and fuel inflation, combined with rising rates, will erode household disposable incomes and SME cash flows in economies that rely heavily on energy imports,” it said.
The credit watcher added that banks in the Philippines and Indonesia were among the most exposed in the region because of their sizable retail loan books and strong growth in consumer lending in recent years.
Aside from consumer and SME lending risks, Moody’s also flagged tighter financial conditions as another key challenge for Philippine banks.
Central banks in emerging economies such as the Philippines could face pressure to keep raising interest rates to contain inflation and currency weakness, leading to higher funding costs for banks.
“These conditions will translate into higher funding costs for banks, as depositors will demand better returns, and wholesale funding will be relatively pricier,” Moody’s said.
“Banks with heavier reliance on short-term or floating-rate funding will pass on higher costs to borrowers, potentially amplifying risks to credit quality,” it added.
Still, the credit rating agency said banks in the Philippines, Indonesia and Thailand had strong capital and provisioning buffers that would allow them to absorb potential credit losses even as higher energy prices pressure borrowers and financial markets across the region.
“APAC banks generally maintain a strong capital adequacy and loan-loss reserve coverage after years of regulatory strengthening and post-pandemic profits,” it said.
Banks in the Philippines, Indonesia and Thailand were said to have core capital ratios often exceeding 15 percent and loan-loss reserve coverage of at least 100 percent of problem loans.
“These enable them to absorb significant credit losses without impairing solvency or access to funding,” Moody’s said.