No more room left for dovish BSP–Amro
The Bangko Sentral ng Pilipinas (BSP) may have no room left to cut interest rates and could shift to a wait-and-see stance as the Middle East conflict unfolds, with the duration of the crisis likely to determine if a tightening cycle is warranted, the Asean+3 Macroeconomic Research Office (Amro) said.
Dong He, chief economist at the regional surveillance group, said at a press conference on Monday that a longer-than-expected war could push inflation above the BSP’s 2-percent to 4-percent target range and keep it there for an extended period—a scenario that could prompt the central bank to raise interest rates.
For now, he said, the BSP should closely monitor the situation so it could deploy an appropriate policy response.
“So the policy advice is really to probably wait and see,” He said. “It’s the persistence of the shock that matters.”
“If the shock is expected to last longer, and then the central bank may need to tighten,” he added.
The Monetary Board is scheduled to meet on April 23 to decide on policy. But amid heightened uncertainty surrounding the war, the board held a surprise meeting last month and left the benchmark rate unchanged at 4.25 percent.
The Iran war has dragged into its sixth week, with US threats to bomb key Iranian infrastructure and a new deadline for Tehran to reopen the Strait of Hormuz, a narrow passage that handles about 20 percent of global oil exports.
Senior Iranian officials issued their own warnings in response, saying the strait would remain blocked until Iran receives payment for war damages.
Last week, the Philippines—the first country to declare a state of national energy emergency amid the oil price shock—obtained Tehran’s assurance that Philippine-bound oil shipments would be allowed safe passage through the strait.
Even so, petroleum industry sources said it’s unlikely that fuel prices at the pump would soon come down from where they have risen since the Middle East conflict erupted.
The turmoil has already 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.
Governor Eli Remolona Jr. has said raising rates to fight inflation would risk delaying economic 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 choke off supply-side price shocks from the conflict.
In its updated outlook, Amro kept its 2026 growth forecast for the Philippines at 5.3 percent, an acceleration from the 4.4-percent expansion recorded in 2025 and the second-fastest in the region behind Vietnam’s estimated growth of 7.4 percent.
The Amro projects domestic growth to strengthen further to 5.8 percent in 2027, though still below the country’s estimated potential of a 6-percent expansion.
“The Philippines economy was performing quite well last year,” He, the economist from Amro, said. “It has entered this period in pretty healthy conditions, so we are confident that the economy can manage this shock.”
