At A Glance
- Domestic and foreign lenders expect the Bangko Sentral ng Pilipinas (BSP) to turn more hawkish and raise the key interest rate to 4.5 percent at the upcoming April 23 meeting, arguing that prolonged supply shocks will eventually ripple through demand, for which policy adjustments have greater impact.
The Bangko Sentral ng Pilipinas (BSP) is facing mounting pressure to abandon its steady policy stance as domestic and foreign lenders warn that persistent supply shocks are beginning to seep into the broader economy.
A growing chorus of economists expects the BSP to raise its benchmark interest rate to 4.5 percent at the April 23 meeting. The shift toward a more hawkish outlook comes despite the Monetary Board’s decision to hold rates steady during a rare off-cycle meeting on March 26.
Frankfurt-based Deutsche Bank wrote in a March 27 commentary that while the BSP opted to hold the key policy rate in a rare off-cycle meeting, it still anticipates the central bank tightening monetary policy with a quarter-point hike.
“Although the BSP kept its policy rate unchanged in an off-cycle MB meeting on March 26, we expect BSP to raise its policy rate by 25 basis points (bps) to 4.5 percent in the April meeting as we warned earlier,” Deutsche Bank Research said.
Ayala-led Bank of the Philippine Islands (BPI) noted that the BSP’s decision to hold rates steady clearly means the war-driven shocks trickling down the domestic economy remain supply-driven.
Think tank Moody’s Analytics also noted that the early meeting “reflects a desire to steady expectations amid rising external risks.”
Risks, however, are mounting that could drive price growth beyond five percent, “especially if oil prices remain elevated,” BPI said.
“Historical experience suggests sustained supply shocks eventually bleed into demand, increasing the likelihood of a more hawkish shift if inflation expectations drift,” BPI senior vice president and lead economist Emilio S. Neri, Jr. said in a March 30 commentary.
According to Neri, the current benchmark rate provides the BSP flexibility to promptly hike borrowing costs if this “fluid” situation worsens. This approach “ensures that the economy does not suffer further from this crisis if inflation expectations shift.”
Deutsche Bank said an immediate surge in inflation will materialize in March, with inflation seen exceeding the four-percent ceiling in April. This is expected to occur alongside the spread of second-round effects through the broader economy.
“A gradual tightening in policy settings from April would provide a strong signal of BSP’s commitment to proactively manage inflationary pressures and maintain macroeconomic stability,” the German lender said.
Meanwhile, BMI, the global debt-watcher Fitch Ratings’ research arm, stressed that while inflation could overshoot targets in the near term, sluggish gross domestic product (GDP) growth will keep interest rates steady rather than prompt a hike.
“As such, we expect the BSP to hold rates steady at 4.25 percent through 2026,” BMI said, reversing the think tank’s previous forecast of a quarter-point easing to four percent next month.
BMI asserted that it remains “premature” to price in a policy hike by the central bank, as surging oil prices and their second-round effects remain supply-driven and are not well placed to be tackled by monetary policy.
“Moreover, softer growth will weaken the case for rate hikes,” BMI further said. This was among the central bank’s justifying points when growth concerns were raised during the post-policy-meeting virtual press briefing.
If the conflict continues, BMI said high fuel prices could drive up transport and logistics costs across the economy, creating widespread inflation that could force the BSP to raise interest rates later in 2026.