By Katherine K. Chan, Reporter
THE BANGKO SENTRAL ng Pilipinas (BSP) kept its policy rate unchanged at 4.25% during a surprise off-cycle meeting on Thursday, because it sought to calm markets amid growing concerns over the impact of the Middle East war on the economy.
In a press release, the BSP said it left the goal reverse repurchase rate unchanged at 4.25%.
“To lift the policy rate presently would delay the recovery,” the BSP said.
This marks the Monetary Board’s first off-cycle move in over two years or since October 2023, when it raised the policy rate to six.5%. The central bank was not scheduled to review policy until April 23.
BSP Governor Eli M. Remolona, Jr. said they decided to face pat as their growth outlook stays clouded and as emerging inflationary risks prove supply-driven, “for which monetary policy has limited effectiveness.”
Mr. Remolona noted that the newest off-cycle policy motion was an assurance for the market, which has grappled with uncertainties arising from the continued war within the Middle East.
“I hope it reassures markets that we’re assessing the situation continually,” he said.
“Normally, with inflation going where it’s going, we’d have hiked. But since it was driven by supply shocks, we felt a hike wouldn’t do very much. And at the identical time, because growth was relatively weak, growth would temper any rise in inflation,” he added.
FASTER INFLATION SEEN
The BSP said its inflation expectations remain well-anchored but raised its forecast for 2026 to five.1% from 3.6% previously. If realized, the headline print would breach its 2%-4% goal.
BSP Deputy Governor Zeno Ronald R. Abenoja said this is predicated on projections that global crude oil prices will average around $85 per barrel (/bbl) by yearend and $76/bbl next yr, citing futures prices.
The central bank also considered the second-round effects of oil prices, including possible uptick in transport fares, food and fertilizer prices, electricity rates and wages, in addition to higher tariff rates and a possible fuel excise tax suspension.
In keeping with Dennis D. Lapid, officer-in-charge of the BSP’s Monetary Policy Sub-Sector, inflation may hover around 3.5% in March before pushing past the BSP’s ceiling to around 5% in April.
As of February, inflation has averaged 2.2%.
Nevertheless, Mr. Remolona said core inflation, which excludes volatile prices of food and fuel, may even rise but is unlikely to speed up beyond 4%. This, he noted, is what the central bank prefers to evaluate their outlook amid current economic conditions.
For 2027, the BSP sees inflation averaging 3.8%, higher than its earlier estimate of three.2%.
The BSP last held regular in February 2025, which was followed by sixth straight 25-basis-point cuts until its Feb. 19, 2026 meeting as its inflation outlook remained subdued on the time.
Mr. Remolona noted that current data showed they’ll do more to support growth right away than address supply-driven spikes in consumer prices.
Nevertheless, he reaffirmed that the BSP stays committed to its price stability mandate.
Mr. Remolona also said the present growth environment still calls for support from fiscal policy to assist the economy get better from the fallout from the corruption scandal, especially with the expected burden of energy shocks on domestic growth.
“Fiscal policy could be simpler at this stage,” the BSP chief said. “Nevertheless it is, I feel, unusual that inflation is now driven almost entirely by supply shocks for which monetary policy cannot do very much, but it may still do something about growth.”
The central bank trimmed its gross domestic product (GDP) growth estimate to 4.4% from 4.6% for this yr but maintained its forecast for 2027 at 5.9%.
Mr. Abenoja said recovery may come by the second half of 2026 as spillovers from last yr’s graft scandal and up to date energy shocks could keep the expansion momentum weak in the primary half.
TIGHTER MONETARY POLICY
Looking ahead, Mr. Remolona said monetary policy decisions will deal with tempering potential second-round effects of the oil price shocks.
He noted that oil hitting $200 per barrel is an “extreme scenario but possible,” adding that the BSP could be forced to tighten if that materializes.
“It’s possible, in fact,” he said. “But when that happens, we could be forced to lift our rates in a type of catch-up mode. But for now, our scenario just isn’t quite that extreme. So, we predict we are able to still manage (to take care of) our policy.”
Mr. Remolona said the BSP is willing to tighten monetary policy if it may address demand-driven inflation stemming from the second-round effects of oil shocks.
“(O)nce we see second-round effects from those shocks, for which we are able to do something in regards to the demand for those second-round effects, then I feel it could be appropriate for monetary policy to tighten, address the inflation from those second-round effects,” he said.
Mr. Remolona also left the door open to holding more off-cycle policy meetings “as needed” if the economic crisis amid the United States-Israel war on Iran lasts longer.
The Monetary Board has five more regular policy meetings this yr scheduled for April 23, June 18, Aug. 27, Oct. 22 and Dec. 17.
Meanwhile, Mr. Remolona said also they are planning to grant regulatory relief measures for the local banking sector, particularly lenders from the informal sector and low-income businesses.
“Actually, we’re contemplating the identical things we did with bank lending to the informal sector and to low-income small businesses. We’re going to have a standardized restructuring if a loan is default,” he said. “We’re going to postpone some payments depending on the sector. So, very just like what we did during (the COVID-19 pandemic),” the BSP chief said.
LONG PAUSE AHEAD
Then again, several analysts have already noted a probable pause prior to the BSP’s off-cycle announcement.
Singapore-based DBS Bank said early on Thursday that soaring pump prices and a weakening peso amid the Middle East war may prompt the central bank to carry regular for an extended period.
In an e-mailed note, DBS Senior Economist Radhika Rao said they now see the BSP choosing a protracted pause somewhat than delivering a final cut as initially expected.
“Onshore financial markets have already been under pressure this month, with the peso (depreciated to a record low) and equity markets amongst the regional underperformers on (a) month-to-date basis,” she said. “The BSP can be wary of lowering rates further on this environment, preferring to remain on an prolonged pause.”
Meanwhile, Latest Zealand-based ANZ Research noted that lingering growth woes and rising inflation risks complicate the BSP’s policy path.
At the same time as domestic activity stays sluggish, the BSP’s easing cycle has reached its end amid inflationary risks from rising costs of rice, electricity and fuel, the think tank said.
ANZ foreign exchange analyst Kausani Basak said markets are anticipating a rate hike from the central bank because the war drags on.
Ms. Basak said economic recovery will now rely on catch-up government spending, but the shortage of a hard and fast timeline diminishes its capability as a growth driver.
“Domestic activity weakness has develop into more pronounced in recent months,” she said. “Its recovery will rely on a pickup in public capex (capital expenditure), with the revival timeline still unclear.”
The flood control corruption scandal last yr dampened government spending, household consumption and investments, dragging GDP growth to a post-pandemic low of 4.4%.
Government spending has declined yr on yr for six straight months. In January, it was down by 23.9% to P303.5 billion from P398.8 billion a yr ago.
Meanwhile, infrastructure spending has also fallen for five consecutive months, declining by an annual 45.2% to P48 billion in November.