The BSP is ready for a monetary policy adjustment amid rising inflation risks

By Katherine K. Chan, A reporter

The Bangko Sentral ng Pilipinas (BSP) said it would take “all necessary monetary measures” to contain inflation amid rising price pressures after April printing exceeded its benchmark.

“The April 2026 inflation of 7.2% exceeded the BSP’s announced forecasts of 5.6% to 6.4%, highlighting the risk of inflation caused by the global oil price shock,” the central bank said in a statement released on Tuesday night.

The April figure, which showed still-high energy prices lifting food and utility costs, also beat the median forecast of 5.5% in a BusinessWorld survey of 17 analysts.

However, April was not the first time the BSP forecast missed the mark. In March, it predicted that inflation would come in between 3.1% and 3.9%, only for the actual figure to be 4.1%.

Following this, the BSP assured the public that it will work to return inflation to the 3% target as part of its mandate to stabilize prices.

“Looking forward, the Monetary Board will continue to be guided by incoming data,” the central bank said. “The BSP is ready to take all necessary monetary measures to ensure that inflation returns to the 3 percent target, which is consistent with its primary mission of maintaining stable rates.”

Last month, the BSP introduced the first 25-basis-point (bp) rate hike in two and a half years to bring the policy rate to 4.5%. The move ended its easing cycle in which it reduced key borrowing costs by a cumulative 225 bps from August 2024 to February this year.

BSP Governor Eli M. Remolona, ​​Jr. he said that they can continue to increase key rates to stop inflation, as they hope for the country’s growth.

The central bank earlier raised its full-year inflation forecast to 6.3% from 5.1%, noting that the headline figure will likely remain above 5% for the rest of the year.

For GlobalSource Partners Senior Advisor Diwa C. Guinigundo, the central bank may still resort to tightening monetary policy as the energy crisis is largely caused by supply.

Hiking rates, the former central banker noted, would allow the BSP to deal with second-order effects and keep inflation expectations grounded, especially amid continued uncertainty over the war.

“Critics say monetary tightening does not work against asset shocks. That is partly correct,” Mr Guinigundo said in a May 5 analysis.

“An increase in the policy rate will not produce an oil or rice harvest. But it can change behavior, which is exactly what matters when the results of the second round begin,” he added.

Mr. Guinigundo noted that the strengthening of the BSP will also curb demand, reduce the ability of firms to aggressively transfer costs, and help contain the price volatility of transportation and services.

Meanwhile, Union Bank of the Philippines Chief Economist, Ruben Carlo O. Asuncion, said the prospects for a cyclical turnaround remain low despite the three-year low in inflation in April.

“Inflation at 7.2% for April, coupled with inflation reaching 3.9%, clearly exposes the risk of inflation and warrants continued policy monitoring by the Bangko Sentral ng Pilipinas,” he told BusinessWorld in a Viber message. “However, the increase in the default rate is not yet fundamental.”

The BSP last raised the policy rate at an off-cycle meeting in October 2023, when the economy was still experiencing runaway inflation amid a global oil shock caused by Russia’s invasion of Ukraine.

“An increase outside the normal policy calendar would be more likely if core inflation continues to rise, inflation expectations begin to decline, or pressure on the peso increases,” Mr. Asuncion said.

“At the moment, we expect the BSP to maintain a strengthening bias, favor moderation, more adjustments between scheduled meetings, supported by strong communication to strengthen expectations and contain secondary outcomes,” he added.

A BSP official told BusinessWorld last month that they now focus on core inflation among the many data points that guide their monetary policy decisions.

In April, headline inflation, which excludes food and fuel prices, rose to a more than two-year high of 3.9% from 3.2% in March and 2.2% last year.

Meanwhile, Mr. Guinigundo said policymakers should focus on building buffers against the rapid spread of global crises in the domestic economy.

This includes maintaining a credible stance against inflation, carefully monitoring the effects of financial spillovers on wages and transportation costs, issuing targeted fiscal measures, and diversifying energy sources while promoting sustainability.

“Because in this episode, what was important was not that the war was temporarily stopped – but that its economic consequences were not there,” said Mr. Guinigundo.