BSP may hike if inflation breaches 4%, says AMRO

By Katherine K. Chan, Reporter

THE Bangko Sentral ng Pilipinas’ (BSP) easing cycle has likely ended, with rate hikes now on the table as energy shocks amid the Middle East war could stoke inflation this year, the ASEAN+3 Macroeconomic Research Office (AMRO) said.

In its latest Regional Economic Outlook for 2026, AMRO said it sees the country’s consumer price index (CPI) picking up to 3.9% this year if oil prices hold around $80-$90 per barrel.

This is faster than its previous 3.2% estimate and the 1.7% inflation print in 2025.

By next year, AMRO sees inflation cooling to 3.6%.

If realized, the CPI would settle near the upper end of the central bank’s 2%-4% goal for two straight years.

AMRO Chief Economist Dong He noted that the Philippines’ heavy reliance on imported oil from the Middle East makes it vulnerable to price and supply shocks.

“The Philippines is one of the more affected countries in the region,” he told BusinessWorld in an e-mail interview. “As a net oil and gas importer, with 98% of its oil imports sourced from the Middle East, the Philippines is exposed to higher oil prices and potential supply disruptions.”

For now, Mr. He said the BSP may adopt a “wait-and-see” approach while assessing the duration of the oil supply shocks.

“The policy advice is really to probably wait and see, and see how long the shock would last. I think it’s the persistence of the shock that matters,” he said at a press briefing on Monday. “If the persistence is longer than expected, then of course, and we see continued inflationary pressures, the central bank may need to react because it has an inflation target range of 1% plus and minus around the 3% target.”

Asked if he still sees room for further easing, Mr. He said: “We don’t see space for cutting rates at the moment because we see upside risks to inflation in the Philippines.”

He noted that the central bank may consider monetary policy tightening if inflation breaches the BSP’s target band for a prolonged period.

“If it goes out of the range, then there may be a need to review, particularly if the shock is expected to last longer, and then the central bank may need to tighten, and that’s the framework that’s in place,” Mr. He said.

Last month, the BSP kept its benchmark rate unchanged at 4.25% in an off-cycle meeting to calm markets worried over uncertainties arising from the US-Iran war.

Its next regular policy meeting is scheduled for April 23.

BSP Governor Eli M. Remolona, Jr. said the Monetary Board arrived at the decision after noting that the current price pressures are supply-driven, and hiking rates immediately risk derailing the country’s economic recovery.

He added that future monetary policy decisions will consider second-round price effects, particularly a potential uptick in transport fares, food and fertilizer prices, electricity rates and wages.

Mr. He said the central bank must “respond decisively” once such second-round effects materialize.

However, Mr. He told BusinessWorld that the BSP must be cautious in adjusting its monetary policy as the country’s growth momentum remains weak.

“Given heightened uncertainty, the authorities should remain vigilant and stand ready to recalibrate policy parameters to mitigate the impact of external shocks,” he added. “Specifically, amid rapidly evolving geopolitical tensions, volatile energy prices, and weaker growth momentum, the BSP should remain cautious in making monetary policy adjustments.”

AMRO expects the Philippine economy to expand by 5.3% this year, though noted that subdued domestic demand and energy shocks poses risks to its growth outlook.

“Meanwhile, enhanced coordination between fiscal and monetary authorities is required to cushion the impact of supply-driven inflation and prevent adverse effects on growth,” Mr. He added. “In this regard, the government could consider timely administrative measures, such as targeted subsidies to highly exposed sectors and reducing tariffs on energy imports.”

AMRO Group Head and Lead Economist Allen Ng also noted that monetary and fiscal authorities should prioritize preventing the supply-driven oil shocks from worsening further.

“I think the key point that we wanted to highlight is the fact that, in this environment, the policy priority is really to stop a supply-driven shock from becoming broader and more persistent,” Mr. Ng said during the briefing.

“That means staying alert for second-round effects, with monetary policy remaining cautious, and fiscal policy focused on timely, well-targeted support for the most exposed sectors and households,” he added.