While Philippine monetary authorities maintained the current policy rate at 4.25 percent in a rare off-cycle meeting, the Bangko Sentral ng Pilipinas (BSP) said it would hike key interest rates if second-round effects from war-driven oil supply shocks occur.

“Once we see second-round effects from those shocks, I think it would be appropriate for monetary policy to tighten and address the inflation arising from them,” BSP Governor Eli M. Remolona Jr. told a virtual press briefing on Thursday, March 26.

He said the central bank would have hiked key borrowing costs given the unprecedented price movements. However, the BSP held back, as inflation spikes have been driven by supply shocks, for which rate adjustments would provide minimal support.

Remolona also pointed to the anemic gross domestic product (GDP) growth as a silver lining, saying it would temper further spikes in prices due to dampened demand. The BSP has forecast the economy to expand by a below-target 4.4 percent this year but rebound to 5.9 percent in 2027.

“I hope it reassures markets that we are assessing the situation constantly,” Remolona said, explaining the rationale behind the urgent announcement.

After the off-cycle meeting, Remolona said the next policy meeting will proceed as scheduled on April 23. He explained that the BSP calls for off-cycle meetings—as was done on March 26—when there are significant changes in the data points the central bank monitors.

He added that the BSP will hold off-cycle meetings whenever global and domestic developments warrant it.

While the BSP has been assessing several data points, Remolona said the most notable development was the “very reassuring” inflation, stressing that inflation expectations remain well anchored.

Remolona said that over the previous days, the BSP looked at “many” data points. “To me, the most striking was how inflation expectations remain well anchored. That’s very reassuring to me,” the governor said.

For March, the BSP expects consumer prices to have expanded by 3.5 percent but anticipates acceleration to five percent in April.

Second-round effects are the inflationary spillovers from initial supply shocks, such as rising oil prices, that trigger subsequent price increases in transport fares, food, and wages.

“If [oil reaches $200 a barrel for six months], we would be forced to raise our rates in a kind of catch-up mode,” Remolona said, referring to an extreme scenario where inflation could register in double digits.

Remolona, however, said the current scenario is “not that extreme, so we think we can still manage by maintaining our policy.”

On the demand side, Remolona said the BSP is considering implementing regulatory relief measures to help the economy withstand current supply shocks and anemic growth. It can be recalled that the BSP granted similar measures to financial institutions during the pandemic years.

These measures would include standardized loan restructuring for defaults and postponing payments for specific sectors.

“We’re looking at similar measures to what we implemented for bank lending to the informal sector and low-income small businesses. This includes standardized restructuring for defaulted loans and the possibility of postponing payments depending on the sector,” the governor said.