Further BSP rate cuts in ’26 unlikely, says BMI
The Bangko Sentral ng Pilipinas (BSP) may have reached the end of its easing cycle, according to BMI Research, as the war in the Middle East and the resulting surge in oil prices could push inflation above manageable levels and rule out further interest rate cuts.
The firm cautioned, however, that it remains “premature” to forecast any interest-rate hikes at this stage.
In a note to clients, BMI, a unit of the Fitch Group, scratched its previous forecast of another rate cut at the April 23 meeting of the Monetary Board. Instead, the firm now expects the top policymaking body of the central bank to keep the policy rate unchanged at 4.25 percent through 2026.
BMI said the US-Iran conflict upended its previous outlook, with inflation now likely to breach the BSP’s 2-percent to 4-percent target band. Even so, the firm said the need to support a sluggish economic growth would likely keep the central bank on hold rather than tighten.
“The Middle East conflict has led to a supply-induced price shock, which has driven up international oil prices significantly,” BMI said. “And this has swiftly passed through to higher domestic fuel prices.”
The war, now in its fifth week, began after the US and Israel struck Iran. Tehran retaliated by targeting neighbors hosting American troops and disrupting traffic through the Strait of Hormuz, a chokepoint for roughly 20 percent of global oil exports.
The turmoil has pushed global crude prices above $100 a barrel and unsettled financial markets. In the Philippines, President Marcos declared a state of national energy emergency, making the country the first to take such a measure in response to the crisis.
Off-cycle decision
The oil shock has already shaped the central bank’s policy stance ahead of its April meeting, with officials announcing an off-cycle decision last week to keep the policy rate unchanged even after raising their average inflation forecast for 2026 to 5.1 percent, above the target band.
Governor Eli Remolona Jr. has said that raising borrowing costs to fight inflation could delay the economy’s rebound from a confidence shock triggered by a major corruption scandal. He added that higher interest rates—typically used to curb demand-driven inflation—would do little to counter supply-side price pressures stemming from the Iran conflict.
Looking ahead, BMI said it was still too soon to determine when the central bank might begin tightening.
“The monetary policy statement was reticent on rate hikes,” the firm said. “A prolonged conflicted even beyond our ‘extend to end’ scenario would leave strong, broad-based second-round inflationary pressures in its wake, prompting the BSP to hike.”
