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 ongoing conflict in the Middle East,” the central bank said in a statement 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 2.4% in February and 1.8% a year ago, making it the fastest and the first time that it breached the BSP’s target since July 2024.
The Philippines is a net oil importer, sourcing the bulk of its oil from the Middle East and making it extremely vulnerable to price and supply shocks.
The BSP said that further escalation of oil shocks would later weigh on the prices of other commodities, which may disanchor its inflation expectations.
“A sharp and prolonged oil price shock could trigger spillover effects with the potential broadening of price pressures to the rest of the CPI (consumer price index) basket,” the BSP said.
“This could also disanchor inflation expectations and generate further second order impact,” it added.
The central bank wants inflation to stay within 2%-4%, with 3% as its point target.
“Looking ahead, mounting risks to the inflation outlook require sustained vigilance,” the BSP said.
“The BSP will carefully consider incoming data at its upcoming monetary policy meeting to assess the need for action in keeping with its price stability mandate.”
The central bank earlier said it expected inflation to accelerate past its target 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 as it reassured markets while it continues to assess 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 as 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 is no longer about whether inflation will rise. It is about whether policy credibility will hold.”
Elevated oil prices, high food inflation reflecting structural weaknesses, and second-round price effects are now defining rising inflationary pressures for the Philippines, he noted.
Mr. Guinigundo said the BSP should communicate clear forward guidance to reinforce its inflation-targeting credibility and ensure price stability by managing its expectations.
The central bank may also carry out 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, may be sufficient in the near term, but only if backed by credibility,” he said. “Without that, the required adjustment could double. Monetary policy cannot pump oil or harvest rice, but it can, 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 is still contingent on oil prices remaining elevated, but BSP’s reiteration that its primary mandate remains price stability suggests to us that the inflation outlook will be its main policy consideration,” Nomura research analysts Euben Paracuelles and Nabila Amani said in a separate note. “The fact that headline inflation has breached its 2-4% target in March and core inflation has picked up in tandem, will, in our view, prompt BSP to deliver a response.”
They also flagged potential further rate hikes to bring the policy rate to as high as 6% if the global benchmark oil price averages $100 per barrel this year.
Meanwhile, Citigroup, Inc. said the central bank may lift its rates by 25 bps this month before making a prolonged pause to re-anchor its inflation expectations and temper second-round price effects without weakening demand further.
“In the short-term, BSP’s initial response may be to manage inflation expectations and curb potential second-round effects,” it said in an e-mailed note. “Weaker PHP (Philippine peso) as result 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 year, with gross domestic product growth at 4%.
On the other hand, Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco noted that the BSP will likely remain on hold as it did last month even after it signaled that inflation may settle above its target by yearend.
“We continue to believe, however, that the Monetary Board won’t respond to this supply-side-driven shock to inflation with rate hikes, particularly as 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 5.1% last month and still decided to stand 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 is still recovering from the fallout of public works-related scandals, we believe BSP will likely look through supply-driven inflation pressures and prioritize sustaining domestic growth momentum and jobs in the immediate term,” UOB Senior Economist Julia Goh and economist Loke Siew Ting said in a separate commentary.
This comes even as UOB raised its inflation forecast to 5.5% from 3% for 2026, as it said that low base effects and the peso’s continued weakness could add weight to consumer prices.
