BSP resists rate hike during surprise meet
The Bangko Sentral ng Pilipinas (BSP) left its benchmark interest rate unchanged at 4.25 percent at an off-cycle meeting on Thursday, holding off on tightening despite rising inflation pressures from the Middle East conflict to avoid disrupting the economy’s fragile recovery from a recent graft scandal.
The Monetary Board had not been scheduled to decide on interest rates until April 23.
But amid uncertainty stemming from the war in the Middle East, Governor Eli Remolona Jr. said the surprise meeting—and the decision it produced—was meant to reassure markets “that we are assessing the situation constantly.”
Remolona said raising rates to fight inflation would risk delaying the economy’s rebound from the confidence shock triggered by a major corruption scandal.
He also acknowledged that higher borrowing costs—typically used to curb demand-driven inflation—would do little to counter supply-side price shocks from the Iran conflict. Overall, policymakers do not expect a buildup in demand-side inflation, pointing to lethargic economic growth that could keep consumer spending in check.
For now, Remolona said monetary authorities are considering regulatory relief measures similar to those used during the Covid-19 pandemic, including stepped-up bank lending to small businesses, as well as loan restructuring and payment extensions for certain sectors.
“Normally, with inflation going where it’s going, we would have hiked. But because it was driven by supply shocks, we felt a hike wouldn’t do very much,” Remolona told a press conference. “And at the same time, because growth was relatively weak, growth would temper any rise in inflation.”
The war, now in its fourth week, has disrupted traffic in the Strait of Hormuz, a key route for roughly a fifth of global oil supply. The turmoil has heightened concerns over energy prices for oil-importing economies like the Philippines, which became the first country to declare a state of national energy emergency in response to the crisis.
Since August 2024, the central bank has lowered its key rate by 2.25 percentage points to support an economy facing domestic and external headwinds. Before the upheaval, inflation had risen to 2.4 percent in February but remained within the central bank’s 2 to 4 percent target band.
The turmoil has prompted the central bank to raise its average inflation forecast for 2026 to 5.1 percent from 3.6 percent previously, with price gains likely to hit as high as 5 percent in April and breach the official target band. The BSP also lifted its inflation outlook for 2027 to 3.8 percent from 3.2 percent before.
The last time the central bank made an off-cycle move was in October 2023, when surging food costs pushed inflation above 6 percent. Looking ahead, Remolona was careful about giving policy signals.
“Things are very uncertain. All we can say at the moment is we run a lot of scenarios. Depending on what happens, we can contemplate various policy moves,” he said. “But at this point, we can’t say very much about where we’re likely to go.”
For watchers like Nicholas Mapa, chief economist at Metrobank, the BSP looks ready to support the anemic economy despite the price pressures. “The statement reads dovish as the central bank looks through first round effect while vigilant for second round effects,” he said.
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