BSP holds rates steady, flags rising inflation risks

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March 27, 2026 | 12:00am

Off-cycle move

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) kept its benchmark interest rate steady at 4.25 percent in an unscheduled meeting yesterday, signaling heightened vigilance as global oil shocks threaten to push inflation above target.

In a statement, the BSP said the Monetary Board convened outside its regular schedule and opted to keep interest rates steady as escalating tensions in the Middle East have driven up global oil and fertilizer prices.

Despite the upside risks, the BSP signaled reluctance to tighten policy, noting that inflationary pressures are largely supply-driven and may not respond effectively to higher interest rates.

“At the same time, the BSP sees continued weak economic growth in 2026. To raise the policy rate at this time would delay the recovery,” the central bank said.

The off-cycle action comes nearly a month before the BSP’s next scheduled policy meeting on April 23. The last time the BSP acted outside its regular policy schedule was in October 2023, when it raised interest rates for the final time before beginning its easing cycle in August 2024.

In a press conference, BSP Governor Eli Remolona Jr. said the central bank called for an off-cycle meeting as “data is so different now,” particularly with the sharp rise in global commodity prices.

“Normally, with inflation going where it’s going, we would have hiked. But because it was driven by supply shocks, we felt a hike wouldn’t do very much,” Remolona said.

He added that weak economic growth also factored into the decision, noting that tightening policy at this stage would be “painful” and could further dampen demand.

The BSP now expects inflation to accelerate sharply this year, with Deputy Governor Zeno Abenoja saying the central bank has raised its 2026 forecast to 5.1 percent from 3.6 percent previously.

For 2027, inflation is now projected at 3.8 percent, higher than the earlier estimate of 3.2 percent, but still within the BSP’s two to four-percent target range.

Abenoja said the upward revision reflects higher oil price assumptions, with crude now expected to average around $85 per barrel this year, significantly above earlier projections of about $64 to $65 per barrel.

The central bank also factored in potential increases in transport fares, electricity rates and fertilizer costs, which could feed into broader price pressures.

On growth, the BSP trimmed its 2026 forecast to 4.4 percent from 4.6 percent previously, reflecting weaker domestic demand and spillover effects from a slower end to 2025. Economic growth is expected to recover to 5.9 percent in 2027.

Abenoja said growth could remain subdued in the first half due to lingering external shocks, but may pick up in the second half as government spending gains traction.

The BSP emphasized that while it has limited tools to address supply-driven inflation, it remains prepared to act if second-round effects emerge.

“Once we see second-round effects… then it would be appropriate for monetary policy to tighten,” Remolona said, citing risks such as higher wages, transport fares and food prices.

The central bank also warned that it would take a more aggressive stance if inflation expectations become unanchored. “If inflation expectations de-anchor, then we would have to be more aggressive,” Remolona said.

For now, however, the BSP is keeping its options open amid heightened uncertainty. Remolona added that while extreme scenarios such as oil prices reaching $200 per barrel remain unlikely, such an outcome would force the BSP to raise interest rates “in a kind of catch-up mode.”

On the peso, Remolona said the currency’s weakness near the 60-per-dollar level has so far not warranted aggressive intervention.

“We intervene largely to dampen the swings. The weakness of the peso is not necessarily a bad thing,” he said, noting that it could help narrow the current account deficit and support exports.

Still, the BSP said it stands ready to respond more actively if exchange rate movements begin to significantly fuel inflation.

Looking ahead, Remolona said the central bank may hold more off-cycle meetings if needed, given rapidly evolving global conditions.