BSP tightening expected as inflation risks broaden

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) may need to pivot back to policy tightening as inflation pressures become more entrenched, according to GlobalSource Partners.

In a briefing note released yesterday, GlobalSource Partners country analyst Diwa Guinigundo said the BSP now faces a “clear policy imperative” to act, warning that price pressures are no longer confined to supply shocks but are increasingly feeding into broader demand dynamics.

“The evidence is no longer ambiguous – inflationary pressures are broadening, deepening and becoming more persistent,” he said.

Guinigundo, a former BSP deputy governor, expects the central bank to begin tightening today, marking a shift from its earlier easing stance.

He noted that what initially stemmed from geopolitical tensions in the Middle East has now cascaded across the economy, with elevated fuel prices driving up transport, freight and logistics costs.

These pressures are spilling over into a wide range of goods and services, with second-round effects becoming more visible.

“Utility rate adjustments are imminent. The restoration of rice tariffs further compounds the risk, given rice’s significant weight in the consumer price index,” he said.

“These are not isolated shocks. They are becoming embedded in the price system,” he added.

Guinigundo also pointed to early signs of persistent inflation, citing the pickup in core inflation to three percent in the first quarter from 2.4 percent previously.

“This is not demand strength – it is price-driven spending that will ultimately erode real purchasing power and trigger demand destruction,” he said.

More concerning, Guinigundo added, is the risk of unanchored inflation expectations as business and consumer sentiment deteriorates.

“Once this occurs, policy becomes more costly and less effective,” he said, noting that early warning signs are already emerging.

The analyst said recent BSP decisions may have lagged behind evolving risks, noting that the central bank maintained an easing bias in February and paused in March despite intensifying geopolitical pressures.

“While initial shocks were supply-driven, the window to preempt second-round effects has narrowed. Delay now risks embedding inflation further into wages, contracts and expectations,” he said.

At a minimum, Guinigundo said a 25-basis-point increase in the policy rate is warranted, with scope for further tightening depending on how conditions evolve.

He also said that the central bank’s earlier easing cycle had supported growth, but its transmission has been uneven, constrained by factors such as procyclical bank behavior and external volatility.

“These factors do not argue for inaction — they strengthen the case for restoring policy credibility,” he said.

Guinigundo warned that delaying action could prove more costly in the long run. “The cost of acting late will far exceed the cost of acting now. Monetary policy must move ahead of the curve, not behind it,” he added.

The BSP is scheduled to meet on April 23 to review its monetary policy stance, with markets closely watching for signals on whether it will shift toward tightening amid rising inflation risks.