BMI, a unit of global credit ratings firm Fitch Solutions, expects the Bangko Sentral ng Pilipinas 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 in light of rapidly rising headline inflation, which likewise might weigh on the country’s growth prospects moving forward.

“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 within the triple digit per liter range, with spillover effects into food prices and transportation costs pushing inflation to a three year high of 7.2 percent in the month. 

“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 following an oil shock typically take around 2 quarters to fully manifest. Prior to the conflict, the central bank had been on a lengthy easing cycle, cutting rates in December last year and in February to address the slowed gross domestic product (GDP) growth in light of the flood control scandal.

BMI warned that net oil importing emerging markets, such as the Philippines, as having a much higher risk for spillover effects related to 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.

Locally, most analysts project the BSP to once again hike rates in the Monetary Board’s upcoming 18 June meeting, with some economists cautioning the country may be drifting into stagflation territory given the recent low GDP growth and accelerated inflation prints.

Meanwhile, BSP Governor Eli Remolona Jr. has maintained a hawkish stance on further rate hikes, earlier stating the central bank will enact “as many as needed” to combat rising inflation. The central bank previously said that the Board considered a larger, 50-basis-point rate hike in April, which would have effectively reversed the last two rate cuts implemented following the fallout from the flood control scandal.