By Katherine K. Chan, Reporter
THE BANGKO SENTRAL ng Pilipinas (BSP) said inflation risks have “significantly” grown after consumer prices sharply accelerated in March amid the oil crisis.
“The inflation risk environment has significantly shifted to the upside amid the continuing conflict within the Middle East,” the central bank said in an announcement released late on Tuesday.
Headline inflation quickened to 4.1% in March, much faster than the central bank’s expected 3.1%-3.9% print, as oil prices soared amid the Middle East war.
The March print picked up from the two.4% in February and 1.8% a yr ago, making it the fastest and the primary time that it breached the BSP’s goal since July 2024.
The Philippines is a net oil importer, sourcing the majority of its oil from the Middle East and making it extremely vulnerable to cost and provide shocks.
The BSP said that further escalation of oil shocks would later weigh on the costs of other commodities, which can disanchor its inflation expectations.
“A pointy and prolonged oil price shock could trigger spillover effects with the potential broadening of price pressures to the remainder of the CPI (consumer price index) basket,” the BSP said.
“This might also disanchor inflation expectations and generate further second order impact,” it added.
The central bank wants inflation to remain inside 2%-4%, with 3% as its point goal.
“Looking ahead, mounting risks to the inflation outlook require sustained vigilance,” the BSP said.
“The BSP will rigorously consider incoming data at its upcoming monetary policy meeting to evaluate the necessity for motion in step with its price stability mandate.”
The central bank earlier said it expected inflation to speed up past its goal band by April, with its full-year forecast now at 5.1%.
The BSP last month maintained its benchmark rate at 4.25% in an off-cycle meeting because it reassured markets while it continues to evaluate the economic impact of the Middle East war. Its next policy meeting is on April 23.
STAGFLATION RISKS
Meanwhile, GlobalSource Partners Philippine Analyst and Principal Advisor Diwa C. Guinigundo said the credibility of BSP’s monetary policy now faces a challenge because the country confronts looming stagflation risks.
“The Philippines is approaching a stagflation threshold: slowing growth, persistent inflation, and narrowing policy space,” he said in an April 7 commentary. “This isn’t any longer about whether inflation will rise. It’s about whether policy credibility will hold.”
Elevated oil prices, high food inflation reflecting structural weaknesses, and second-round price effects are actually defining rising inflationary pressures for the Philippines, he noted.
Mr. Guinigundo said the BSP should communicate clear forward guidance to strengthen its inflation-targeting credibility and ensure price stability by managing its expectations.
The central bank may additionally perform calibrated policy tightening, delivering rate hikes between 25 basis points (bps) and 50 bps early on, he added.
“A policy rate adjustment of 25-50 bps, combined with strong signaling, could also be sufficient within the near term, but provided that backed by credibility,” he said. “Without that, the required adjustment could double. Monetary policy cannot pump oil or harvest rice, but it could, and must, prevent inflation from becoming self-sustaining.”
Nomura Global Markets Research likewise sees a 25-bp rate increase later this month on expectations that the BSP will prioritize its price stability mandate amid still high energy prices.
“This continues to be contingent on oil prices remaining elevated, but BSP’s reiteration that its primary mandate stays price stability suggests to us that the inflation outlook shall be its most important policy consideration,” Nomura research analysts Euben Paracuelles and Nabila Amani said in a separate note. “The indisputable fact that headline inflation has breached its 2-4% goal in March and core inflation has picked up in tandem, will, in our view, prompt BSP to deliver a response.”
In addition they flagged potential further rate hikes to bring the policy rate to as high as 6% if the worldwide benchmark oil price averages $100 per barrel this yr.
Meanwhile, Citigroup, Inc. said the central bank may lift its rates by 25 bps this month before making a protracted pause to re-anchor its inflation expectations and temper second-round price effects without weakening demand further.
“Within the short-term, BSP’s initial response could also be to administer inflation expectations and curb potential second-round effects,” it said in an e-mailed note. “Weaker PHP (Philippine peso) as results of wider current account deficit (higher oil import bill) also risks de-anchoring inflation expectations thus warranting a response.”
“Against this backdrop, we maintain our forecast for a 25 bps BSP rate hike in April while cautioning against expecting successive or oversized moves,” Citi added.
The bank sees headline inflation hovering at 5.7% this yr, with gross domestic product growth at 4%.
Then again, Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco noted that the BSP will likely remain on hold because it did last month even after it signaled that inflation may settle above its goal by yearend.
“We proceed to imagine, nonetheless, that the Monetary Board won’t reply to this supply-side-driven shock to inflation with rate hikes, particularly because it set a high bar for any tightening,” he said in an e-mailed note. “Recall that it jacked up its 2026 inflation view to five.1% last month and still decided to face pat.”
Analysts at UOB Global Economics & Markets Research also expect the central bank to pause as tepid growth complicates its inflation-targeting monetary policy.
“Given the duration and severity of the Middle East conflict remain uncertain while the Philippines’ economy continues to be recovering from the fallout of public works-related scandals, we imagine BSP will likely leaf through supply-driven inflation pressures and prioritize sustaining domestic growth momentum and jobs within the immediate term,” UOB Senior Economist Julia Goh and economist Loke Siew Ting said in a separate commentary.
This comes whilst UOB raised its inflation forecast to five.5% from 3% for 2026, because it said that low base effects and the peso’s continued weakness could add weight to consumer prices.