By Katherine K. Chan, A reporter
BANGKO SENTRAL ng Pilpinas (BSP) maintained its policy changed to +4.25% per week an unexpected meeting outside the cycle Thursday, as it sought to calm markets amid growing concerns upon the influence of the Middle Eastern war in the economy.
In a statement, the BSP said it left the target repurchase rate unchanged at 4.25%.
“Raising the policy rate at this time will delay the recovery,” the BSP said.
This marks the first move by the Monetary Board in two years or since October 2023, when it raised the policy rate to 6.5%. The central bank was not scheduled to review policy until April 23.
BSP Governor Eli M. Remolona, Jr. he said they have decided to stand firm as their growth outlook remains dim and as the emerging risk of inflation appears to be supply-driven, “which monetary policy is not working well for.”
Mr. Remolona noted that the recent off-cycle policy action was a reassurance for the market, which faced uncertainty from the ongoing war in the Middle East.
“I hope it reassures the markets that we are constantly evaluating the situation,” he said.
“Normally, with the rate of inflation going where it is going, we would have gone up. But because it was driven by commodity shocks, we felt that the increase would not happen much. And at the same time, because the growth was weak, the growth would reduce any inflation,” he added.
VISIBLE POWER ACCELERATION
The BSP said inflation expectations remained firm but raised its 2026 forecast to 5.1% from 3.6% previously. If noticed, the headline print would have breached its 2%-4% target.
BSP Vice Governor Zeno Ronald R. Abenoja said this is based on the forecast that global crude oil prices will average around $85 per barrel (/bbl) by the end of the year and $76/bbl next year, citing future prices.
The central bank also considered the effects of the second round of oil prices, including possible increases in transportation costs, food and fertilizer prices, electricity prices and wages, as well as higher taxes and possible fuel tax freezes.
According to Dennis D. Lapid, the official in charge of the BSP’s Monetary Policy Sub-Sector, inflation may drop to around 3.5% in March before moving to the BSP’s ceiling of around 5% in April.
Since February, inflation has reached 2.2%.
However, Mr. Remolona said core inflation, which excludes volatile food and fuel prices, will also rise but is unlikely to rise above 4%. He mentioned that this is what the central bank prefers to test its opinion in the current economic conditions.
By 2027, the BSP sees inflation reaching 3.8%, up from its previous estimate of 3.2%.
The BSP last stabilized in February 2025, followed by a sixth consecutive 25-point cut until its Feb. meeting. 19, 2026 as his own. the inflation outlook remained low at that time.
Mr. Remolona noted that current data showed that they could do more to support growth at the moment than to deal with supply-driven increases in consumer prices.
However, he confirmed that the BSP remains committed to its task of price stability.
Mr. Remolona also said that the current state of growth still requires the support of fiscal policy to help the economy recover from the scandal of corruption, especially as it is expected that there will be an expected burden of energy shock on domestic growth.
“Monetary policy will be more effective now,” the BSP official said. “But, I think, it’s unusual that inflation is now driven almost entirely by shocks that monetary policy can’t do much about, but can still do something about growth.”
The central bank cut its gross domestic product (GDP) growth to 4.4% from 4.6% this year but kept its 2027 forecast at 5.9%.
Mr. Abenoja said recovery could come in the second half of 2026 as the bloodshed from last year’s scandal and the recent energy shock could keep growth momentum weak in the first half.
TIGHT MONETARY POLICY
Looking ahead, Mr. Remolona said monetary policy decisions will focus on mitigating the possible effects of the second round of oil price shocks.
He noted that hitting oil at $200 a barrel is “a worst-case scenario but possible,” adding that the BSP will be forced to tighten if that happens.
“It’s possible, of course,” he said. “But if that happens, we will be forced to raise our prices in a catch-up manner. But for now, our situation is not that bad. Therefore, we think we can still manage (maintain) our policy.”
Mr. Remolona said the BSP is willing to tighten monetary policy if it can deal with demand-driven inflation from the secondary effects of the oil cycle.
“(O)f we see the second-round results from that shock, when we can do something about the need for those second-round results, then I think it would be good for monetary policy to tighten, to deal with the inflation of those second-round results,” he said.
Mr. Remolona also left the door open to holding more off-cycle policy meetings “as needed” if the economic crisis between the United States-Israeli war against Iran lasts for a long time.
The Monetary Board has five more regular policy meetings this year scheduled for April 23, June 18, Aug. 27, Oct. 22 and Dec. 17.
Meanwhile, Mr. Remolona said they also plan to provide ways to control local banks, especially money lenders. informal sector and low income enterprises.
“Actually, we are thinking about the same things we did with lending money to banks in the informal sector and small businesses with low incomes. We will have a general restructuring if the loan defaults,” he said. “We will postpone certain payments depending on the sector. So, it is very similar to what we did during (the COVID-19 pandemic),” said a BSP official.
STAND FOR A LONG TIME AHEAD
On the other hand, several analysts have already noted the temporary suspension ahead of the non-announcement of the BSP cycle.
Singapore-based bank DBS Bank said early Thursday that rising pump prices and a weak peso amid the Middle East war could keep the central bank on hold for longer.
In an emailed letter, DBS Senior Economist Radhika Rao said they now see the BSP choosing to pause rather than deliver the final cut as originally expected.
“Onshore financial markets are already under pressure this month, with the peso (falling to record lows) and the stock market among the region’s weakest performers (a) month to date,” he said. “BSP will be wary of lowering prices in this area, choosing to stay for a while.”
Meanwhile, New Zealand-based ANZ Research noted that persistent growth problems and rising inflation risks complicate the BSP’s policy approach.
Even as domestic employment remains stagnant, the BSP’s tapering cycle has reached its end amid inflationary risks from rising prices of rice, electricity and fuel, the think tank said.
ANZ financial analyst Kausani Basak said markets were expecting a rise in central bank rates as the war continued.
Ms. Basak said that economic recovery will now depend on government spending, but the lack of a fixed time limit reduces its potential as a source of growth.
“The weakness of domestic work has become more prominent in recent months,” he said. “Its recovery will depend on the adoption of public expenditure (capital expenditure), and the timeline for recovery is not yet clear.”
Last year’s flood management scandal dampened government spending, household consumption and investment, dragging GDP growth to a post-pandemic low of 4.4%.
Government spending has fallen year-on-year for six consecutive months. In January, it decreased by 23.9% to P303.5 billion from P398.8 billion last year.
Meanwhile, infrastructure spending also fell for five consecutive months, down 45.2% year-on-year to P48 billion in November.
