Business confidence improved sharply in February, prior to the escalation of the Middle East conflict, according to the Bangko Sentral ng Pilipinas (BSP).

In a statement, the BSP said its second monthly run of the Business Expectations Survey (BES) showed the overall business confidence index (CI) rising from 38.6 percent in January 2026 to 51.1 percent in February 2026. Firms cited expectations of stronger demand, increased infrastructure investment and ongoing governance reforms addressing the flood control scandal as key drivers of improved optimism.

The quarter-ahead CI likewise increased from 33.3 percent in the previous survey to 37.4 percent. Businesses are counting on favorable weather conditions and typically strong summer revenues to support near-term growth. They also expect government spending to pick up as investor confidence recovers.

The central bank noted, however, that the latest BES results were gathered before the escalation of the Middle East conflict at the start of March.

“The February 2026 BES was conducted before the onset of the recent Middle East conflict. The sustained recovery in business confidence and stable inflation expectations will therefore depend on how long the conflict lasts and how it affects the domestic economy,” the BSP’s statement read.

Last Thursday, the central bank announced it would keep interest rates steady for now, citing manageable inflationary pressures, weak economic growth lingering from last year’s corruption scandal, and the limited effectiveness of monetary policy in addressing supply-driven pressures stemming from the Middle East conflict.

“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,” said BSP Governor Eli M. Remolona Jr. “This inflation is driven by supply shocks, where the potency of monetary policy is limited.”

The BSP said it now projects 2026 inflation at 5.1 percent as the conflict continues to push oil prices higher — above the target range of 2 percent to 4 percent — although it expects inflation to return within the target band by 2027.

Last Tuesday, Economy, Planning and Development Secretary Arsenio Balisacan outlined several forward-looking scenarios as the Middle East conflict continues to drive global oil prices upward. Under DEPDev’s worst-case scenario, inflation could surge to 14.3 percent in April if crude prices reach around $200 per barrel.

On Thursday, Remolona said that while this scenario remains “somewhat extreme,” monetary tightening may still be considered if inflation accelerates significantly. He noted that BSP tools operate on the demand side and have limited impact on supply-side shocks caused by the ongoing Middle East conflict, particularly those affecting oil and fertilizer prices.

“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.”