By Katherine K. Chan, A reporter
THE BANGKO SENTRAL in Pilipinas (BSP) said the risk of inflation “has increased significantly” after the increase in consumer prices accelerated in March during the oil crisis.
“The inflation risk profile has changed significantly amid ongoing tensions in the Middle East,” the central bank said in a statement released on Tuesday night.
Inflation accelerated to 4.1% in March, much faster than the central bank’s 3.1%-3.9% print, as oil prices rose amid the Middle East war.
March printing grew from 2.4% in February and 1.8% last year, making it the fastest and the first time it breached the BSP’s target since July 2024.
The Philippines trades internationally, getting most of its oil from the Middle East and making it highly vulnerable to price and supply shocks.
The BSP said further increases in the oil shock over time will weigh on prices of other commodities, potentially dampening inflation expectations.
“A sharp and protracted oil price shock may result in a potential bloodbath and increased price pressures in the CPI (consumer price index) basket,” the BSP said.
“This may also dampen inflation expectations and create a secondary effect,” it added.
The central bank wants inflation to stay between 2%-4%, with 3% as its target.
“Looking ahead, increased risks to inflation rates require continued vigilance,” the BSP said.
“The BSP will carefully consider the incoming data in its upcoming monetary policy meeting to assess the need to act in line with its mandate to stabilize prices.”
The central bank previously said it expected inflation to accelerate above its April target, with its full-year forecast now at 5.1%.
The BSP last month kept its benchmark rate at 4.25% in an off-cycle meeting as it reassured markets while continuing to assess the economic impact of the Middle East war. Its next policy meeting is on April 23.
THE LAST DANGER
Meanwhile, GlobalSource Partners Philippine Analyst and Senior Advisor Diwa C. Guinigundo said the credibility of the BSP’s monetary policy is now being challenged as the country faces risks of economic instability.
“The Philippines is approaching a deflationary threshold: slow growth, persistent inflation, and narrowing of policy space,” he said in a statement on April 7. “This is no longer about whether inflation will rise. It’s about whether policy credibility will hold.”
High oil prices, high food inflation indicating structural weakness, and second-round price effects now explain the upward pressure on inflation in the Philippines, he noted.
Mr. Guinigundo said the BSP should communicate a clear forward guidance to strengthen its credibility in the inflation target and ensure price stability by managing its expectations.
The central bank may also tighten the benchmark, bringing in rate hikes between 25 basis points (bps) and 50 bps earlier, he added.
“A policy rate adjustment of 25-50 bps, coupled with tight signaling, could be disruptivefstrong in the near term, but only if supported by credibility,” he said. Fiscal policy cannot pump oil or harvest rice, but it can, and should, prevent inflation from becoming self-sustaining.”
Nomura Global Markets Research also sees a 25-bp rate hike later this month on expectations that the BSP will prioritize its mandate for price stability amid currently high energy prices.
“This still depends on the remaining oil prices raised, but the BSP’s reiteration that its main mandate remains stable on prices suggests that the inflation outlook will be its main policy,” Nomura research analysts Euben Paracuelles and Nabila Amani said in a separate note. “The fact that core inflation breached its 2-4% targets in March and core inflation grew in line, in our view, will encourage the BSP to deliver a response.”
They also flagged a possible rate hike to bring the policy rate up to 6% if the world oil price equals $100 per barrel this year.
Meanwhile, Citigroup, Inc. said the central bank may raise its rates by 25 bps this month before a longer pause to strengthen its expectations for inflation and the effects of the second round of prices without reducing demand.
“In the short term, the BSP’s first response may be to control monetary expectations and to contain the possible effects of a second round,” the emailed note said. “The weak PHP (Philippine peso) due to the current account deficit (higher oil import bill) also risks lowering inflation expectations thus warranting a response.”
“With this backdrop, we maintain our forecast for a 25 bps BSP rate hike in April while cautioning against expecting a sequential or larger move,” Citi added.
The bank sees inflation rising 5.7% this year, and gross domestic product growing 4%.
On the other hand, Pantheon Macroeconomics Emerging Asia Economist, Miguel Chanco, noted that the BSP will remain on hold as it did last month even after indicating that inflation may reach above its targets by the end of the year.
“However, we continue to believe that the Monetary Board will not respond to this supply shock to deflation with inflation, especially as it sets the bar high for any tightening,” he said in an emailed note. “Remember that it raised its inflation outlook for 2026 to 5.1% last month and is still holding back.”
Analysts at UOB Global Economics & Markets Research also expect the central bank to pause as softer growth complicates its inflation-targeted monetary policy.
“Given the length and magnitude of the Middle East conflict is uncertain while the Philippine economy is still recovering from the fallout from public service scandals, we believe the BSP will look at the pressure on commodity-driven inflation and prioritize domestic economic growth and jobs faster,” said UOB economist Julia Goh and alternative economist Ting Loke.
This comes as UOB raised its inflation forecast to 5.5% from 3% in 2026, as it said the effects of lower inflation and the continued weakness of the peso could add weight to consumer prices.
