Oil shock may prompt BSP rate hike

By Katherine K. Chan, Reporter

OIL PRICE SHOCKS may prompt the Bangko Sentral ng Pilipinas (BSP) to hike its policy rate as early as its next meeting in April amid the risk of inflation breaching the central bank’s target band in March, an economist said.

Security Bank Chief Economist Angelo B. Taningco sees the BSP reversing its policy path in April but ruled out an off-cycle move as the central bank has “room to wait.”

“In this episode of an oil shock, it is more broad-based. It also affects the other energy supplies, natural gas. And there are ripple effects coming from this because of the shipping disruption at the Strait of Hormuz, which I think will not be reopened anytime soon,” Mr. Taningco told Money Talks with Cathy Yang on One News on Thursday.

“So, in that regard, to basically manage inflation expectations, I think that a rate hike is warranted,” he added.

If realized, it would be the first time in over two years or since October 2023 that the central bank will tighten its monetary policy. 

The BSP has been on an easing path since August 2024, delivering a total of 225 basis points (bps) in cuts to bring the key interest rate to 4.25%.

BSP Governor Eli M. Remolona, Jr. has opened the door for a potential rate hike once oil price hits over $100 per barrel amid concerns that it could bring inflation above 4% or the upper end of their target band.

The Monetary Board’s next policy meeting is on April  23.

Local fuel retailers on Tuesday raised oil prices by double digits for the first round of their planned staggered hikes.

Gasoline prices were increased by P7 to P13 per liter, while diesel prices were up P17.50 to P24.25 per liter and kerosene by as much as P32 to P38.50 per liter.

This came after Brent crude oil price topped $100 per barrel on Monday for the first time in over three years as the ongoing Middle East war disrupted oil trade.

The United States and Israel’s attacks since late February triggered Iran to block off the Strait of Hormuz, fueling volatility in global oil markets due to concerns over major oil price spikes or shortages. The strait serves as a vital chokepoint where nearly a fifth of the world’s oil supply passes through.

Mr. Taningco said the Philippines is only experiencing price-driven shocks and not supply issues as “we still have in the world a glut of oil supply.”

“It’s just that chokepoint in the Middle East has really disrupted the flow of oil and other energy supplies, and therefore we have this price shock,” he added.

Still, Mr. Taningco said it is unlikely for oil prices to soar to $200 per barrel, adding that it has yet to reach the $140-per-barrel worst-case scenario anticipated by the market.

Meanwhile, ING Economics said insufficient buffers and wide current account deficit exposes the Philippines to more risks amid sharp oil price swings, citing the 17% climb in local gasoline prices.

“The Philippines is likely to feel higher oil prices sooner than most Asian counterparts, such as Thailand or Indonesia, given its modest fuel buffers, rapid domestic price pass‑through and a structurally wider current account deficit,” Deepali Bhargava, regional head of research for Asia-Pacific at ING, said in a commentary published late on Wednesday.

Inflation has been on an uptrend since December last year, accelerating to 2.4% in February as costlier oil, particularly fuel and liquefied petroleum gas, weighed on households’ pockets.

According to Ms. Bhargava, how quickly elevated energy costs will translate into higher prices in transport, electricity and food will determine the country’s inflation trajectory.

“In our scenario of sustained oil disruptions for a month, CPI (consumer price index) inflation for the Philippines is expected to inch closer to the upper end of 4% of the BSP’s target range,” she said.

Ms. Bhargava said this may warrant a prolonged pause by the BSP, ending its nearly two-year easing cycle.

Meanwhile, the ING analyst sees the Philippines hitting its growth target at 5.2% despite uncertainties from last year’s graft scandal and the Middle East war.

“We maintain our 2026 GDP forecast at 5.2%, with a meaningful upturn expected only in the second half of the year,” Ms. Bhargava said.

“We anticipate weak growth pressures to persist in the first half of 2026, at least, as ongoing investigations and unresolved political and oil price uncertainty continue to weigh on both business confidence and broader economic sentiment.”

Last year, Philippine gross domestic product (GDP) expanded by just 4.4%, the lowest since 2020, as the flood control corruption issue took a toll on investments, government spending and household consumption.

For Mr. Taningco, the ongoing oil crisis calls for long-term government reforms beyond short-term solutions such as subsidies or excise tax suspension to prevent a drag on growth.

“These short-term solutions in terms of fuel subsidy and even the suspension of the tax on fuel (have) to be time-bound and well-targeted. And that has to be, I think, communicated clearly,” he said.

“In addition, you have to push through with the other governance reforms that will help boost investor confidence and be able to at least temper the potential weakening of demand-side growth,” he added.

Such reforms could help the Philippine economy recover and potentially attain the low end of the government’s 5%-6% growth target for the year, Mr. Taningco said.