IMF flags policy risks from climate change
The International Monetary Fund (IMF) warned that increasingly powerful typhoons, intensified by climate change, could complicate monetary policymaking for the Bangko Sentral ng Pilipinas (BSP).
This would force the central bank to balance the need to support a disaster-stricken economy against the risk of higher inflation from supply shocks, the fund said in a December 2025 paper examining selected issues facing the Philippines.
The IMF said severe climate events carry significant implications for monetary policy because of their effects on prices and economic output.
The Philippines is situated within the Pacific Ring of Fire, a region vulnerable to destructive typhoons, volcanic eruptions and earthquakes. That said, the Washington-based institution noted that the country’s exposure to climate-related shocks has already become an important consideration in the BSP’s efforts to meet its inflation target.
“The growing frequency and intensity of climate-related disruptions suggests that these events will increasingly challenge monetary policy in the years ahead,” the IMF said.
“While a single typhoon is unlikely to impact the macroeconomy in the Philippines, we show that a year with multiple, consecutive and strong typhoons can become macro-critical by lowering GDP (gross domestic product) and raising prices,” it added.
At its final policy meeting for the year, the Monetary Board this month slashed the overnight borrowing rate, guiding bank lending costs by a quarter point to 4.5 percent, the lowest in more than three years. This brought the cumulative reductions since the easing cycle started in August last year to 2 percentage points.
BSP Governor Eli Remolona Jr. said the central bank may be nearing the end of its rate-cutting campaign, adding that this month’s action “may be the last cut.” But he said any further rate easing next year—if they come at all—are likely to be limited to a single quarter-point cut.
The BSP was able to prioritize growth, which was hit by a widening corruption scandal, because inflation remained benign despite the onslaught of late-season storms. Even so, Remolona previously flagged the impact of climate change on monetary policy, as the devastating storms could cause supply problems that could stoke consumer price increases.
Looking ahead, the IMF said the BSP must weigh the tradeoff between anchoring inflation expectations and supporting the postdisaster recovery.
“On balance, we find that a monetary policy reaction function that supports rebuilding while maintaining credibility to keep expectations anchored is the most appropriate,” the Fund said.
