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Foreign banks prepare for interest rate hikes following energy emergency
Business
The Economy
Foreign banks prepare for interest rate hikes following energy emergency
Foreign banks prepare for interest rate hikes following energy emergency
By Derco Rosal
Published Mar 27, 2026 12:14 pm
Foreign lenders are backing the Bangko Sentral ng Pilipinas’ (BSP) increasingly hawkish stance as the local economy grapples with war-driven oil price volatility and supply disruptions.
Nomura Holdings Inc., a Japanese investment and brokerage giant, raised its expectations for “significant” second-round effects stemming from surging energy prices—a key factor likely to push monetary authorities toward higher lending rates.
Nomura wrote in a March 26 commentary that the policy-setting Monetary Board’s (MB) unexpected off-cycle meeting, where a hold position still dominated the lively deliberations, will likely be followed by a policy hike.
Its view is anchored in the sustained threat of a spike in oil prices stemming from the incessant exchange of missile strikes in the Middle East, which would consequently constrict global oil supply, a fifth of which is channeled through the Strait of Hormuz.
“Taking the [March 26] off-cycle meeting into account, we believe there is a rising probability of the BSP delivering an outright policy rate hike on April 23,” said Euben Paracuelles and Yiru Chen, Nomura economists for Asia.
BSP Governor Eli M. Remolona Jr. said the central bank would have hiked key borrowing costs given the unprecedented price swings. The BSP kept rates unchanged, as supply-driven inflation spikes are unlikely to be eased by policy adjustments.
Remolona said the BSP would likely hike the freshly maintained 4.25 percent key interest rate if second-round effects from war-driven oil supply shocks occur. Second-round effects are the inflationary ripple from initial supply shocks—such as rising oil prices—that push up transport fares, food prices, and wages.
During the rare off-cycle policy meeting, the BSP revealed sharply higher inflation forecasts, climbing from 2.4 percent in February to 3.5 percent in March and five percent in April.
“Because of the extent of the price pressures currently from surging energy prices, we think second-round effects are likely to be significant despite the still-negative output gap,” Paracuelles and Chen said, offering an opposing stance to the BSP’s view that the economic growth slump would help temper demand-driven price growth acceleration.
For the year, the BSP has forecast the economy to expand by a below-target 4.4 percent but rebound to 5.9 percent in 2027.
“Historically, core inflation also tends to follow headline consumer price index (CPI) inflation closely with a relatively short lag, especially during episodes of supply-side shocks,” the economists explained.
Still, Paracuelles and Chen said their expectation of a hike heavily depends on the Israel-Iran military hostilities “remaining unresolved and oil prices remaining elevated.”
Last Tuesday, March 24, President Ferdinand Marcos Jr. declared a state of national energy emergency amid persistent oil price and supply risks, which threaten to drain the country’s energy reserves and destabilize the economy.
Japanese financial giant MUFG Bank Ltd. said energy inflation upswings have become major factors in Philippine monetary policy due to the declared energy emergency.
“Energy risks have moved squarely into the policy reaction function,” MUFG senior currency analyst Lloyd Chan wrote, adding that the ongoing global energy crisis has made policy easing unlikely as the BSP prioritizes calming inflationary pressures.
“While growth remains weak and would ordinarily argue for easing, the energy shock has effectively priced out near-term rate cuts,” Chan said, noting that market expectations increasingly lean toward a hike and citing the country’s high vulnerability to oil shocks given its near-total reliance on Middle Eastern oil.
Further, Australia and New Zealand Banking Group (ANZ) pencilled in a continued pause at the upcoming April policy meeting, a central bank move that would signal sustained vigilance over energy price movements.
“We expect the BSP to stay on hold at its next meeting in April and to emphasise continued monitoring of second-round price effects,” said Sanjay Mathur and Kausani Basak, ANZ chief economist for Southeast Asia and India, and foreign exchange analyst, respectively.