BSP easing cycle over; oil crisis clouds outlook

Analysts signal pause as inflation risks rise

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP)’s easing cycle may have come to an end, with analysts signaling a prolonged pause in policy settings as inflation risks rise amid the Middle East conflict.

In a report, BMI Country Risk & Industry Research said the BSP’s surprise off-cycle decision to keep rates steady at 4.25 percent last week underscored a shift in policy direction, as global oil shocks feed into domestic prices and inflation expectations.

“While we had previously expected the BSP to cut rates at its April meeting, the US-Iran conflict upended this view,” BMI said.

“Inflation is likely to breach the two to four percent target range in the coming months, but sluggish growth will keep the BSP on hold rather than tighten. As such, we expect the BSP to hold rates steady through 2026,” it added.

The reassessment comes as President Marcos declared a national energy emergency, warning of an “imminent risk” of “critically low energy supply” as tensions in the Middle East threaten fuel availability.

In a separate note, DBS senior economist Radhika Rao said the measure is a “precautionary tool,” with authorities forming a committee alongside the Department of Energy to secure supplies, maintain access to essential services, enforce conservation efforts and prevent hoarding.

“To shield purchasing power, the government might extend transportation subsidies and social welfare support,” Rao said.

She noted that unlike regional peers, Philippine pump prices broadly track global movements due to the absence of widespread subsidies, potentially dampening demand as fuel costs rise.

Beyond fuel, inflation risks are expected to broaden through food channels, as higher fertilizer prices feed into supply costs. Rao said the Philippines is among the more vulnerable economies in ASEAN, alongside Thailand and Vietnam.

BMI likewise flagged mounting price pressures, saying the conflict has triggered a “supply-induced price shock,” with diesel prices jumping by more than 60 percent since pre-conflict levels, while fertilizer prices continue to rise.

Despite this, analysts said immediate rate hikes remain unlikely.

“All that said, we think it is premature to forecast rate hikes from the BSP,” BMI said, noting that inflation is largely supply-driven and monetary policy is “not well placed to tackle that.”

The case for tightening is further tempered by weak growth signals. Government spending fell by nearly 24 percent year-on-year in January, while export growth slowed to eight percent in the first two months of the year.

Still, risks are tilted to the upside.

“The risks are that the BSP hikes later in 2026,” BMI said, warning that prolonged elevated fuel costs could trigger second-round effects and eventually force policy action.

For now, DBS said the central bank is likely to stay on hold.

“The BSP will be wary of lowering rates further in this environment, preferring to stay on an extended pause,” Rao said, adding that DBS has removed its earlier expectation of another rate cut from its baseline forecast.