By Katherine K. Chan, Reporter
WASHINGTON, D.C. — The Bangko Sentral ng Pilipinas (BSP) said it has room to boost policy rates because the National Government’s planned catch-up spending is anticipated to cushion the economy from a sharper slowdown amid the energy crisis.
In an exclusive interview with BusinessWorld, BSP Governor Eli M. Remolona, Jr. said the country will see a wider negative output gap as inflation and economic growth face mounting pressures from the Middle East conflict and the lingering effects of last 12 months’s flood control corruption scandal.
Still, he noted that the central bank will avoid any excessive tightening.
“We don’t need to tighten by an excessive amount of,” Mr. Remolona said on the sidelines of the International Monetary Fund (IMF) and World Bank’s 2026 Spring Meetings here on Tuesday.
“But there’s room to tighten, especially because the priority about growth shouldn’t be as big as before, given what we expect will occur on the fiscal side,” he added.
Last month, the BSP held policy rates regular in an off-cycle meeting because it sought to calm markets amid growing uncertainties, and cautioned that tightening immediately risks delaying economic recovery.
The most recent off-cycle move marked the BSP’s first hold since June 2024, pausing its nearly two-year easing cycle where it slashed the policy rate by a complete of 225 basis points. It last hiked its rates in an off-cycle announcement in October 2023.
The Philippine economy slumped last 12 months as a corruption scandal involving flood control projects dampened investments, public spending and household consumption.
Philippine gross domestic product grew by 4.4% in 2025, the worst seen because the COVID-19 pandemic.
Mr. Remolona said faster and higher government spending within the second half could help ease growth woes, allowing the central bank to give attention to maintaining price stability.
“The output gap will probably be more negative, barely more negative than before. But we also know that government spending will pick up within the second a part of the 12 months. And never only will it pick up, it is going to be higher quality government spending,” he said.
“So that may help growth, which makes our job somewhat bit easier. Then we are able to worry more in regards to the inflation side, especially with the second-round effects starting to materialize,” he added.
Second-round price effects may emerge before expected after headline inflation breached the central bank’s goal range a month ahead of their forecast, Mr. Remolona noted.
“Now we’re pondering possibly the spillover effects, and as we give attention to spillover effects, could also be happening… barely before we thought,” he said.
In March, elevated oil prices amid the Middle East conflict drove inflation to a near two-year high of 4.1%, faster than the BSP’s 3.1%-3.9% forecast and a pair of%-4% goal for the 12 months.
The central bank had expected inflation to maneuver past its goal by April, though Mr. Remolona said the forecast miss was “not entirely unexpected.”
“The oil price shock itself is a world shock, and there’s little or no we are able to do about that shock. But we worry in regards to the spillover effects of that shock,” he said. “It might spill over into the value of transportation, the value of fertilizer, after which food prices.”
Mr. Remolona earlier said that the Monetary Board’s future policy decisions will center on tempering second-order effects.
Meanwhile, the central bank governor noted that inflation expectations remain anchored to this point, adding that they intend to expand their monitoring of consumer and business expectations.
“(Inflation expectations are) to this point so good. To this point, they appear anchored,” Mr. Remolona said. “We’re probably going to do more surveys of expectations and not only take a look at the subsequent two years but possibly look at five years down the road.”
WAIT AND SEE
For now, the BSP chief said they’re still assessing how long they are going to persist with a wait-and-see approach as they weigh more data, with core inflation and costs for the underside 30% of households amongst their foremost focus for the April 23 policy review.
“We’re taking a look at the info as they arrive… There’s still data coming that may help us make a choice on the 23rd,” Mr. Remolona said.
“We’re not taking a look at just the headline inflation. We’re focusing a bit more on core inflation, which chips out the more volatile elements in prices. After which we’re also specializing in this inflation based on the patron basket of the bottom 30% of households,” he added.
At the identical time, the Intergovernmental Group of Twenty-4 (G-24), which the Philippines is part of, noted that developing countries’ central banks now assume a “critical balancing role” as energy shocks heighten stagflation risks.
“The central banks have a balancing act,” Olawale Edun, G-24 chairman and Nigerian Finance minister, said at a press briefing on Tuesday. “They’ve a extremely vital role to play in calibrating and helping to steer the economy safely through this current energy crisis and geopolitical tensions.”
Nonetheless, Akhtar Javed, G-24 first vice-chairman and executive director of the State Bank of Pakistan, said growing pressures from the energy crisis are making it “really difficult” for monetary authorities to strike a balance between taming inflation and boosting growth.
“(T)his is a difficult time for the central bank, and particularly the G-24 countries, which were already facing some pressures due to tariffs and other related things. But this regional conflict has also put further pressures, and it’s really difficult for the central banks to strike a balance,” Mr. Javed said.
G-24 Secretary Iyabo Masha said central banks should proceed to face pat as monetary policy tightening could have limited effects on supply-driven shocks.
“What we’re seeing is that it’s mainly supply-side constraints on oil production, and supply-side constraints don’t respond well to monetary policy like rate of interest hikes,” she said.
“So, I’ll say that unless central banks see that a few of these inflationary pressures are going into wages (and) are showing up in real growth, they need to, a minimum of on balance, wait and see and see how things evolve. But after all, all the things must be in a data-dependent manner,” she added.