BSP tracks Mideast war impact on PHL

THE BANGKO SENTRAL ng Pilipinas (BSP) said it is closely monitoring the impact of the escalating Middle East war on inflation and the broader economy as it prepares for 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 conflict on Philippine inflation and the economy,” the central bank said in a statement on Wednesday.

“The BSP is assessing the potential impact of higher oil prices on the price of fertilizer, transport fares, and inflation in general,” it added, noting that price stability continues to be its primary mandate.

On Tuesday, BSP Governor Eli M. Remolona, Jr. met with President Ferdinand R. Marcos, Jr. to discuss the Monetary Board’s policy decision during its first policy review this year in February.

Finance Secretary and Monetary Board member Frederick D. Go said on Tuesday that the Board will consider hiking rates next month if oil prices stay elevated.

At the same time, the central bank said it continues to intervene in the foreign exchange market to smoothen out sharp swings and temper inflationary risks as the ongoing war weighs on the peso. 

“This is consistent with a flexible exchange rate policy, with intervention limited to tempering large swings that could affect inflation rather than defending any specific level,” it said.

This came after the local unit slumped to an all-time low of P59.87 against the greenback on Monday, down 13.50 centavos to break its previous record-low finish of P59.735 on Friday.

‘DEFENSIVE RATE HIKE’
Meanwhile, Oxford Economics said the BSP will likely reverse its policy path this year as rising oil prices are expected to stoke inflation. 

In a report released late on Tuesday, Oxford Economics Senior Economist Callee Davis said the central bank might raise its policy rate by the third quarter if the oil price holds above $100 per barrel (/bbl) for two months.

“(A) few economies appear more at risk of implementing defensive rate hikes from (the third quarter) through yearend, including South Africa, the Philippines, Thailand, Indonesia, and Central and Eastern European countries such as Poland and the Czech Republic,” she said.

According to Oxford Economics’ estimates, oil at $100/bbl would bring inflation closer to 4%, while oil at $140/bbl will likely push it above that mark.

If the latter holds true, Ms. Davis said the BSP might lift its key rate as early as the second quarter.

Oil surged past $100/bbl last week to the highest since mid-2022 as supply woes amid the ongoing war in the Middle East drove 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 might tighten monetary policy if the per-barrel cost of oil reaches $100, noting that it could drive inflation beyond the central bank’s 2%-4% target.

If realized, the central bank would be ending its nearly two-year easing cycle to mark its first rate hike in over two years or since October 2023.

The Monetary Board last reduced the benchmark interest rate by 25 basis points (bps) for a sixth straight meeting in February, bringing it to an over three-year low of 4.25%.

It has delivered a total of 225 bps in cuts since it began easing in August 2024.

Local pump prices have also been soaring, with diesel and kerosene prices up for a 12^th straight week and gasoline for the 10^th week in a row.

Fuel retailers began another round of staggered pump price adjustments on Tuesday. This week, gasoline prices are set to climb by a total of P12.90 to P16.60 per liter, diesel by P20.40 to P23.90 per liter, and kerosene by P6.90 to P8.90 per liter.

These adjustments would push gasoline prices to as much as P91.60 a liter, diesel to P114.90 a liter and kerosene to P143.79 per liter, based on the Department of Energy’s monitoring.

Inflation also picked up for a third straight month to 2.4% in February as elevated energy costs weighed on consumer prices.

However, any tightening cycle would likely be temporary as central banks may resume easing if prolonged oil shocks end up dampening gross domestic product (GDP) growth, Ms. Davis noted.

“Still, this period of tighter monetary policy would be temporary under these scenarios, lasting only until yearend,” she said.

“Even a prolonged increase in oil and gas prices over the medium term is unlikely to fully reverse the current EM (emerging markets) easing cycle, on aggregate, over the next two years, as central banks would likely resume easing if GDP growth weakens significantly under severe, prolonged oil and gas price shock scenarios,” Ms. Davis added.

The Philippines still faces risks to the outlook following the flood control corruption last year that tainted public and investor sentiment and slowed economic activity, leading GDP growth to slump to a post-pandemic low of 4.4%.

Earlier this year, the BSP said the economy may rebound by the second half of the year as recent data pointed to tentative signs of improving business confidence.

However, BSP Deputy Governor Zeno Ronald R. Abenoja said on Tuesday that external shocks from the Middle East war threaten the country’s recovery prospects.

He noted that the degree and duration of oil price surges, which they are monitoring, will determine the central bank’s monetary policy path in the coming months. — Katherine K. Chan