BMI, a unit of global credit ratings firm Fitch Solutions, expects the Bangko Sentral ng Pilipinas (BSP) to deliver interest rate hikes amounting to 100 basis points (bps) in 2026 in light of the widespread effects of the national energy emergency.

Analysts from the firm said in a Tuesday webinar that the BSP’s hand may be forced amid rapidly rising headline inflation, which could likewise weigh on the country’s growth prospects.

“Growth was already weak coming into the crisis, but inflation has shot up and forced the hands of the central bank,” said Lee Yen Nee, Senior Asia Country risk analyst at BMI.

“There’s a group of economies with very limited policy options, and this includes the Philippines, Pakistan and Sri Lanka. And we have made the largest downward revision to our growth forecast here,” she added.

In April, the BSP became among the first central banks in the region to hike interest rates in response to the Middle East conflict. Domestic fuel prices rose firmly into the triple-digit per-liter range, with spillover effects on food prices and transportation costs pushing inflation to a three-year high of 7.2 percent in the month. 

Difficult choices

“The central bank [earlier] held an off-cycle meeting at the end of March, but ended up not adjusting policy rates and saying that raising rates at that time would weigh on growth,” Lee said.

“But one month later, when growth concerns became arguably more pronounced, the central bank ended up hiking rates, essentially deciding that it cannot ignore the feed-through of higher energy prices to inflation. So, this shows how quickly things can change and how an emerging market can get caught in a very tough spot,” she added.

A report published by the BSP following its monetary policy meeting said that spillover effects from an oil shock typically take about 2 quarters to manifest fully. Before the conflict, the central bank had been on a lengthy easing cycle, cutting rates in December last year and in February to address slowing gross domestic product  growth amid the flood-control scandal. 

BMI warned that net oil-importing emerging markets, such as the Philippines, face a much higher risk of spillover effects from the global energy shock. In particular, the firm slashed its Philippine growth forecast for the year to 3.9 percent, a downgrade of around 1.3 percentage points, marking BMI’s largest downward revision for any economy outside the Middle East region.

The firm also raised its 2026 headline inflation forecast for the Philippines to 6.1 percent, up by 3 percentage points and the second-largest upward revision among its global forecasts related to the energy shock, trailing only Egypt.