THE Bangko Sentral ng Pilipinas (BSP) could be forced to tighten policy as rising oil prices fan inflationary pressures, Nomura Global Economics said, highlighting the central bank’s growing dilemma between curbing price increases and supporting economic growth.
In its latest Asia Economic Monthly report, Nomura said it expected a total of 50 basis points (bps) in rate hikes to be delivered this year, which will bring the policy rate to 4.75 percent, before shifting to a rate-cutting cycle in 2027.
“Rate hikes are likely in the Philippines, as the BSP maintains its orthodox inflation-targeting mandate,” it said.
“However, because of the still subdued growth outlook, these are measured hikes that we think BSP will likely reverse in 2027, when inflation returns to target, allowing BSP to cut by a total of 75 bp,” it added.
Nomura raised its 2026 inflation forecast for the Philippines to 4.9 percent, above the BSP’s 2.0- to 4.0-percent target. Inflation is expected to remain elevated at 3.2 percent next year.
“The direct inflation impact is being muted by fiscal intervention, while core inflation depends on demand strength,” it said, noting that price pressures across Asia have broadly increased due to higher fuel, transport and raw material costs.
Inflation risks, Nomura said, are more pronounced due to the full pass-through of higher oil prices to domestic consumers, unlike in other countries that have implemented subsidies or price controls.
This is expected to push core inflation sharply higher, potentially doubling from around 3.0 percent in the first quarter to about 6.0 percent by the fourth quarter of 2026 “as the full energy pass-through should push up inflation in restaurant, recreation, personal care, and other energy-sensitive goods and services categories.”
The expected rise in inflation has put the BSP in a difficult position as tighter monetary policy could further dampen economic activity.
Nomura trimmed its 2026 growth forecast for the Philippines to 5.0 percent from 5.3 percent, citing the adverse effects of higher oil prices, supply disruptions and weaker demand. The outlook for 2027 was also lowered to 5.6 percent from 6.1 percent.
The report noted that the energy shock was affecting economies through multiple channels, including higher fuel and transportation costs, supply shortages of key raw materials and declining real incomes, all of which could weigh on consumption and investment.
“The energy shock could hurt Asia’s growth through multiple channels,” Nomura said, pointing to squeezed corporate margins, weaker business confidence and tighter financial conditions.
Despite the growth risks, the BSP is expected to prioritize price stability, especially as inflation expectations may need to be managed early to prevent second-round effects.
Nomura’s analysis, which compares a rules-based approach to monetary policy with discretionary decisions, showed a “consistent signal” that further tightening was likely in the Philippines and Singapore while other Asian economies could adopt a more cautious stance.
The divergence was said to reflect varying levels of exposure to the energy shock as well as differences in fiscal support, energy buffers and domestic demand conditions across the region.
