Poll: BSP to kick off tightening cycle as high oil prices bite
The Bangko Sentral ng Pilipinas (BSP) is widely expected to raise interest rates this week for the first time in more than two years, a step that would position the Philippines among the first Asian economies to pivot toward tighter monetary policy as surging oil prices fuel a fresh wave of inflation.
Ten of 16 economists polled by the Inquirer expect the central bank’s policy-setting Monetary Board to lift the benchmark rate by a quarter point to 4.5 percent at its April 23 meeting. The rest see policymakers keeping the rate at 4.25 percent.
If carried out, the increase would mark the first tightening move since October 2023, back when the BSP raised borrowing costs in an off-cycle decision after food prices pushed inflation above 6 percent.
Should Bank Indonesia opt to keep rates unchanged at its April 22 meeting, the Philippines would become only the second economy in Asia to tighten policy in response to the oil shock, following Singapore, whose central bank—the Monetary Authority of Singapore—led the region in tightening last week.
Inflation expectations
Higher borrowing costs are intended to prompt households to rein in spending, easing demand-driven price pressures but also cooling economic activity.
However, the Philippines—the first country to declare a national energy emergency amid Middle East turmoil—is grappling with supply-driven inflation. The central bank has acknowledged that such challenges are not best addressed through rate hikes, which could also delay the economy’s recovery from a confidence shock.
Already, inflation rose to a near two-year high of 4.1 percent in March, edging past the central bank’s 2-percent to 4-percent target range, as limited government support to battered households allowed higher energy prices to spill more quickly into other goods.
Despite the limits to monetary policy, Nicholas Mapa, the chief economist at Metrobank, said raising rates could help anchor inflation expectations. The goal is to convince consumers to stop anticipating faster price increases, as they may behave in ways that fuel more inflation, such as demanding higher wages.
“The BSP will be mindful not to tighten too aggressively as governor rightly pointed out that monetary action has limited impact on combating supply side inflation,” Mapa said.
Aris Dacanay, senior Association of Southeast Asian Nations economist at HSBC, said the BSP will likely prioritize its fight against inflation as the economy faces stagflation risks—the mix of high inflation and slow growth. “The second-round effects of the oil shock quickly permeated in the economy,” Dacanay said. “These spillover effects are not to be ignored.”
But Domini Velasquez, chief economist at Chinabank, said the BSP would likely adopt “a prudent wait-and-see approach.”
“While second-round effects are inevitable given oil’s broad use across the economy, the limited scope for demand-pull inflation suggests that expectations should remain largely anchored,” she said.
Alvin Arogo, chief economist at Philippine National Bank, said increasing the cost of financing now seems at odds with the earlier move to provide loan relief to banks and borrowers. “Monetary tightening this soon could seriously put at risk prospects for growth recovery without doing much dent on inflation,” he said.
