BSP seen hiking rates amid inflation surge — BPI

The Bangko Sentral ng Pilipinas (BSP) Monetary Board is expected to deliver a rate hike this Thursday in response to economic pressures stemming from the Middle East conflict, according to Emilio S. Neri Jr., senior vice president and lead economist at the Bank of the Philippine Islands (BPI).

In a Friday commentary, Neri said BPI projects the central bank will raise its target reverse repurchase (RRP) rate by 25 basis points amid rising inflationary pressures linked to the conflict.

“We expect the BSP to deliver a 25-bps policy rate hike on April 23, as the balance of risks has shifted toward a more persistent and broad-based inflation environment,” he said. “Full-year inflation could easily average above 5%, with monthly prints potentially approaching at least 8% if Dubai oil prices remain persistently above $100 per barrel.”

The RRP is the BSP’s key policy interest rate, used to manage liquidity and influence borrowing costs in the economy. A lower RRP increases money supply, encouraging consumption and boosting demand, which can, in turn, raise inflation.

An RRP hike, on the other hand, encourages banks to hold funds rather than lend, leading to higher borrowing costs, slower spending and investment, and ultimately helping to curb inflation—though it may also temper economic growth.

The Monetary Board implemented two RRP cuts in December and February—prior to the escalation of the Middle East conflict—amid weaker-than-expected economic growth, largely attributed to the flood control scandal’s impact on infrastructure spending and investor confidence. The Board also convened an off-cycle meeting last month, where it opted to keep rates steady, citing weak 2025 growth and the limited effectiveness of monetary policy against supply-side shocks such as rising oil prices.

However, economists like Neri expect the BSP to hike rates by at least 25 basis points this year as first- and second-round effects of the conflict feed into headline inflation, which rose by 1.7 percentage points month-on-month to 4.1% in March—breaching the upper end of the BSP’s target range.

“So for inflation, we usually weaken demand, which is what we do. We weaken demand by tightening monetary policy,” said BSP Governor Eli M. Remolona Jr. in a recent TV interview.

“That would not have a lot of effect in the face of a supply shock. So we’re waiting for spillover effects onto demand. When those effects appear, then we can do something with monetary policy,” he added.

Neri echoed this view, noting that supply-side shocks tend to spill over into other goods and services, influencing consumer behavior as households adjust spending in anticipation of broader price increases beyond fuel and transport—key drivers of March inflation.

“Beyond energy, the conflict’s spillovers continue to weigh on critical commodities such as fertilizers, semiconductors, pharmaceuticals, and automotive components, underscoring the fragility of maritime trade routes and global supply chains,” he said.

The central bank entered its “quiet period” last Thursday ahead of the April 23 policy meeting. Meanwhile, Donald J. Trump said the Strait of Hormuz is now “completely open,” despite the continued US blockade on Iranian ports as peace talks remain unresolved.

Neri added that OPEC members have warned that damage to energy infrastructure can persist beyond the conflict itself, reinforcing the risk of structurally higher oil prices even under scenarios of partial diplomatic de-escalation.