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BSP, EM central banks seen hiking rates as outflows surge
Business
Banking & Finance
BSP, EM central banks seen hiking rates as outflows surge
BSP, EM central banks seen hiking rates as outflows surge
Published Mar 31, 2026 09:01 am
Central banks in emerging markets (EMs), including the Philippines, are seen hiking interest rates to temper weakening currencies and higher capital outflows, according to think tank Capital Economics.
Shilan Shah, deputy chief EM economist at Capital Economics, said in a March 30 report that they expect monetary tightening by the Bangko Sentral ng Pilipinas (BSP), Bank Indonesia (BI), Banco de México, as well as some central banks in central Europe.
BSP Governor Eli M. Remolona Jr. earlier said that the central bank would likely hike the 4.25-percent policy rate—which the policy-setting Monetary Board (MB) maintained during a rare off-cycle meeting last week—if second-round effects from war-driven oil supply shocks occur.
One reason for the anticipated rate hikes is the sustained, larger outflows from EMs since the start of the war in the Middle East than during the Covid-19 pandemic.
“EM external positions are healthy by recent standards so this may not present immediate balance of payments (BOP) risks. But it does raise the prospect of significant interest rate hikes should the conflict intensify and outflows continue to build,” Capital Economics said.
The think tank’s data showed that outflows from EM bonds and equities hit more than $60 billion in March, surpassing outflows in April 2020, when the world was placed under the most stringent lockdowns at the onset of the pandemic.
Capital Economics noted that outflows from EM assets have surged amid inflation concerns driven by rising energy prices, with equity markets accounting for the bulk of withdrawals, far exceeding those from bond markets.
The record-low Philippine peso as well as recent declines in the local stock market have been attributed to the BSP’s expectations that headline inflation could soar to as high as 5.1 percent this year, above the two- to four-percent target range deemed as manageable annual price increases.
“Looking ahead, our baseline scenario is that the Iran war continues intensely until the end of April. At that point, outflows from EMs would probably start to ease. But in a more adverse scenario, outflows could intensify further,” Capital Economics warned.
The think tank is nonetheless less worried since its latest financial risk indicators show that risks of currency crises in EMs remain near historic lows, with major EMs well positioned to withstand tighter external financing conditions.