BANGKO SENTRAL ng Pilipinas (BSP) said it is close monitoring the impact of the escalating war in the Middle East on inflation and the wider economy as it prepares at its April 23 policy meeting.
“Ahead of the monetary policy meeting on April 23, 2026, the BSP is closely monitoring the impact of the Middle East conflicts on inflation and the Philippine economy,” the central bank said in a statement on Wednesday.
“The BSP is assessing the potential impact of higher oil prices on fertilizer prices, transportation costs, and inflation in general,” it added, noting that price stability continues to be its primary mission.
On Tuesday, BSP Governor Eli M. Remolona, Jr. met with President Ferdinand R. Marcos, Jr. to discuss the policy decision of the Monetary Board during its first policy review this year in February.
Finance Secretary and Finance Board member Frederick D. Go said on Tuesday that the Board will consider fares next month if oil prices continue to rise.
At the same time, the central bank said that it continues to intervene in the foreign exchange market to adjust the sharp changes and risks of inflation as the ongoing war weighs on the peso.
“This is in line with the exchange rate policy, with limited interventions to reduce large fluctuations that could affect inflation rather than protecting any particular rate,” it said.
This came after the local unit fell to a record low of P59.87 against the greenback on Monday, down 13.50 centavos to break its previous record low of P59.735 on Friday.
‘INCREASING DEFENSE MEASURES’
Meanwhile, Oxford Economics said the BSP will reverse its policy stance this year as rising oil prices are expected to push up inflation.
In a report released late Tuesday, Oxford Economics Senior Economist, Callee Davis, said the central bank may raise its policy rate in the third quarter if the price of oil is above $100 a barrel (/bbl) for two months.
“(A) few economies appear to be at risk of increasing protectionism from (the third quarter) until the end of the year, including South Africa, the Philippines, Thailand, Indonesia, and Central and Eastern European countries such as Poland and the Czech Republic,” he said.
According to Oxford Economics estimates, oil at $100/bbl will push inflation closer to 4%, while oil at $140/bbl will likely push it above that mark.
If this is true, Ms. Davis said the BSP may raise its key rate early in the second quarter.
Oil rose above $100/bbl last week to its highest level since mid-2022 as supply problems amid the ongoing war in the Middle East pushed up prices.
Brent futures stood at $102.27/bbl as of Wednesday morning, while US West Texas Intermediate crude was at $94.67/bbl, Reuters reported.
Mr. Remolona also said earlier that they may tighten monetary policy if the cost of a barrel of oil reaches $100, noting that it could push inflation above the central bank’s target of 2%-4%.
If possible, the central bank will be ending its two-year rate cut cycle to mark the first rate hike in two years or from October 2023.
The Monetary Board last cut the benchmark interest rate by 25 basis points (bps) at the sixth consecutive meeting in February, bringing it to a more than three-year low of 4.25%.
It has delivered a total of 225 bps in cuts since its first easing in August 2024.
Local pump prices have also been on the rise, with diesel and kerosene prices up by 12 per centth straight week and fuel for 10th week after week.
Petrol retailers started another round of pump price adjustments on Tuesday. This week, the price of gasoline is expected to increase by P12.90 to P16.60 per liter, diesel costs P20.40 to P23.90 per liter, and kerosene will increase by P6.90 to P8.90 per liter.
This adjustment will increase the prices of gasoline to P91.60 per liter, diesel to P114.90 per liter and kerosene to P143.79 per liter, based on the monitoring of the Department of Energy.
Inflation also rose for the third consecutive month to 2.4% in February as higher energy costs weighed on consumer spending.
However, any tightening cycle is likely to be short-lived as central banks may resume easing if the prolonged oil shock ends up dampening gross domestic product (GDP) growth, Ms Davis noted.
“Nevertheless, this period of tight monetary policy will be short-lived under these circumstances, continuing until the end of the year,” he said.
“Even a prolonged increase in oil and gas prices in the medium term is unlikely to fully reverse the current EM (emerging markets) easing cycle, inclusively, over the next two years, as central banks may resume tapering if GDP growth weakens significantly under difficult, prolonged oil and gas price conditions,” Ms Davis added.
The Philippines still faces risks to its outlook following last year’s flood management scandal that soured public and investor sentiment and slowed economic activity, resulting in GDP growth slowing to below 4.4%.
Earlier this year, the BSP said the economy may recover in the second half of the year as the latest data points to positive signs of improving business confidence.
However, BSP Vice Governor Zeno Ronald R. Abenoja said on Tuesday that external shocks from the war in the Middle East threaten the hopes of restoring the country.
He mentioned that the rate and timing of the increase in oil prices, which they are looking at, will determine the direction of the central bank’s monetary policy in the coming months. – Katherine K. Chan
