MANILA — The Philippine central bank said on Monday it might consider a stronger monetary policy response if elevated inflation expectations change into entrenched, vowing it “will take all needed motion” to be certain that inflation returns to its 3% goal.
“If the info and our assessment of evolving risks point to higher inflation expectations becoming entrenched, then we may consider a stronger response,” the Bangko Sentral ng Pilipinas (BSP) said in an e-mailed response to a Reuters query.
The BSP raised its key policy rate by 25 basis points to 4.50% in April.
Listed here are more details and context of the central bank’s responses:
The BSP said it doesn’t goal a specific exchange rate level and intervenes only when excessive volatility poses a serious risk to inflation expectations. The peso has risen 6.1% vs. the dollar within the last three months, based on LSEG data.
The Philippines is sensitive to grease price shocks as a consequence of its high dependence on oil imports and current account deficits, but a weaker peso cushions the impact by supporting exports, remittances and revenues from business process outsourcing, the BSP said.
BSP Governor Eli M. Remolona, Jr. said in May the central bank was considering an off-cycle rate hike ahead of a scheduled meeting on June 18.
‘SLOWFLATION’
Meanwhile, the Philippines is experiencing “slowflation,” with slowing growth and accelerating inflation amid oil shocks from the Middle East war, putting the central bank in a difficult policy setting, Metropolitan and Bank Trust Co. (Metrobank) said.
In a commentary on Friday, Metrobank research officer Marian Monette Florendo Obias noted that the economy has not reached stagflation as domestic growth is simply weak but not stagnant, while the unemployment rate is seen holding regular.
“The domestic economy stays fragile and highly sensitive to geopolitical developments, with ongoing local political squabbles weighing on overall sentiment,” she said. “For now, while stagflation risks are rising, the Philippines stays within the early phase of ‘slowflation.’”
In keeping with Ms. Obias, ‘slowflation’ refers to an economic condition with fast inflation, weak but still positive growth, and still stable employment.
Economic growth has been sluggish because the second half of 2025, easing to a brand new post-pandemic low of two.8% within the first three months of the yr.
The country’s latest jobless rate softened to five% in March from 5.1% in February but worsened from 3.9% a yr earlier.
Inflation, however, has settled above the BSP’s goal because it quickened to 7.2% in April from 4.1% in March.
In a separate Viber message on Monday, Metrobank Chief Economist Nicholas Antonio T. Mapa said they expect headline inflation to barely quicken to 7.3% in May.
Analysts at Nomura Global Markets Research also project the May print to settle at 7.3%, as barely lower fuel prices offset still high rice prices and electricity rates.
Meanwhile, Deutsche Bank Research sees last month’s inflation coming in at 8.1%.
Nevertheless, Metrobank’s Ms. Obias noted that even the continuing suspension of excise taxes on kerosene and liquefied petroleum gas (LPG), which was imposed in April, is probably not enough to temper energy inflation.
“The suspension of excise taxes on kerosene and LPG may alleviate the impact, but these fuels represent only a small share of overall consumption,” she said. “Diesel and gasoline, that are more widely used, are still subject to excise taxes and proceed to guide to second-round effects, limiting the general effect on inflation.”
A BusinessWorld poll of 16 economists conducted last week yielded a median estimate of seven.9% for headline inflation in May, which is quicker than the 7.2% clip in April and 1.3% last yr.
It likewise sits right on the upper certain of the central bank’s 7.1%-7.9% forecast for the month, but well above its 2%-4% tolerance range.
The BSP expects inflation to remain above 5% for a lot of the yr to bring the full-year print to six.3% before cooling to 4.3% in 2027.
HAWKISH BSP
Although the continued acceleration of consumer prices stays largely driven by supply shocks, the central bank continues to be expected to stay hawkish, Metrobank’s Mr. Mapa noted.
“Despite the sharp uptick in inflation due mainly to provide side shocks, BSP will still likely resort to tightening of policy,” he said. “We caution against aggressive tightening nevertheless given the moderating growth outlook.”
Nevertheless, Ms. Obias said the “slowflation” scenario is difficult local monetary and fiscal authorities, with the central bank seen to eventually return to easing as high borrowing costs risk hurting the economy further.
“This “slowflation” has made the policy environment for each monetary and monetary authorities increasingly complex,” she said. “Although the BSP is predicted to tighten monetary policy this yr, it might eventually reverse course, as a chronic high-interest-rate environment could further dampen already weak economic growth.”
The Philippine Statistics Authority will release the May inflation data on Friday, June 5, around two weeks before the Monetary Board’s third policy meeting this yr on June 18. — Reuters with Katherine K. Chan