BSP holds rates as oil shocks persist

The Bangko Sentral ng Pilipinas (BSP) will keep interest rates steady for now as the Middle East conflict continues to weigh on the economy, citing negative spillover effects from the flood control scandal on last year’s growth and the limited effectiveness of monetary policy against supply-driven inflation.

In a Thursday afternoon press briefing, BSP Governor Eli M. Remolona Jr. said the Monetary Board convened in an off-cycle meeting and decided to maintain the target reverse repurchase (RRP) rate at 4.25 percent. He noted that monetary policy tools have limited impact on inflationary pressures driven by supply shocks, such as surging oil and fertilizer prices.

“As a data-driven central bank, we’ve been paying close attention to the fast changing and uncertain environment resulting from the conflict in the Middle East,” he said. “This inflation is driven by supply shocks, where the potency of monetary policy is limited.”

Last Tuesday, Economy, Planning and Development (DEPDev) Secretary Arsenio Balisacan outlined several forward-looking scenarios as the Middle East conflict continues to push global oil prices higher. Under DEPDev’s worst-case scenario, inflation could surge to 14.3 percent in April if crude prices reach around $200 per barrel — potentially triggering across-the-board price increases.

On Thursday, Remolona said that while this scenario remains “somewhat extreme,” monetary tightening may still be considered if inflation accelerates significantly.

“Its possible, of course, but if that happens, we would be forced to raise our rates in a kind of ‘catch-up’ mode. But for now, our scenario is not quite extreme, so I think we can still manage with maintaining our policy rate,” he said. “So we can do something with the downside risks to growth, but not to this kind of inflation.”

Remolona, who chairs the Monetary Board, also pointed to the lingering effects of weak 2025 growth due to the flood control scandal, noting that raising rates at this point could further delay economic recovery.

“We also project growth to remain weak. In that regard, to raise rates at this time would be painful,” he said.

He added that the BSP now forecasts headline inflation at 4.2 percent for the year — above the central bank’s target range of 2 percent to 4 percent amid the ongoing conflict.

Economic growth slowed to 4.4 percent in 2025 — below the government’s target range of 5.5 percent to 6.5 percent — as the flood control corruption controversy dampened investor sentiment and weighed on public infrastructure spending. Remolona said the BSP now expects growth in 2026 to remain at around 4.4 percent, also below the national target of 5 percent to 6 percent and a downward revision from the 4.6 percent forecast in February.

President Ferdinand R. Marcos Jr. declared a national “energy emergency” on Wednesday as the conflict continues to disrupt the Strait of Hormuz — a key route for global oil exports. As a result, domestic pump prices have risen to over P100 per liter, prompting government measures aimed at protecting purchasing power, including the suspension of fuel excise taxes and a temporary halt to public transport fare hikes.

“Things are very uncertain, so all we can say at the moment is we run a lot of scenarios, then, depending on what happens, then we can contemplate various policy moves. But at this point, we can’t say very much about where we’re likely to go,” Remolona added.