Unlike the central banks of neighboring economies, the Bangko Sentral ng Pilipinas (BSP) faces tremendous pressure amid chaotic oil price swings, but the likely move is a pause in easing key borrowing costs to stabilize prices.

Nomura Holdings, Inc., a Japanese investment and brokerage giant, revised its previous assumption that the BSP will likely lower the key interest rate by another 25 basis points (bps) by the end of 2026. It now sees the central bank keeping rates unchanged at 4.25 percent through next year.

This is the expected policy response to the continuing oil supply constriction as the dust from the volley of missiles between the United States (US)-backed Israel and Iran has yet to settle.

Sonal Varma and Si Ying Toh, Nomura's chief economist for India and Asia excluding Japan, and economist for Asia excluding Japan, have tweaked their inflation projection for 2026 upward from a calm 2.5 percent to a slightly faster pace of 3.2 percent, reflecting the oil shock.

A pause in monetary policy easing would not abandon the growth momentum, as Nomura still anticipates steady gross domestic product (GDP) growth at 5.3 percent in 2026 and 6.1 percent in 2027—both of which were retained by the lender’s economists despite the geopolitical conflict spilling over domestically.

Nomura noted that the Philippines and Japan are highly exposed to the escalating war in the Middle East given both economies’ extreme dependence on crude oil from the oil-rich Persian Gulf.

While not the highest, “Japan and the Philippines source over 90 percent of their crude oil from the Middle East...which exposes them to concentration risk,” said Varma and Toh.

Based on Nomura’s scorecard, where a higher score equates to more vulnerability, the Philippines received a score of 99.8 percent.

Meanwhile, London-based Capital Economics said it does not expect the BSP to “rush into action,” noting that February inflation remains subdued at 2.4 percent and the local economy is still gasping for air.

However, Gareth Leather, Capital Economics economist for Asia, said: “The balance of risks would shift toward tightening if oil prices remain elevated for a prolonged period.”

Leather also flagged the government’s limited fiscal space, keeping the government from disbursing ample fuel subsidies for the vulnerable sector.

He added that the transmission of global fuel prices to domestic consumer costs would be faster given the economy’s reliance on imported oil and gas.

Despite the rising fuel and transport prices, Leather still expects inflation to average 2.3 percent this year and three percent in 2027.

Output growth, meanwhile, is seen lagging behind the 4.4 percent growth in 2025. Leather penciled in an economic expansion rate of 4.5 percent in 2026, gradually quickening to five percent in 2027—both of which fall short of the respective annual targets.