Monetary authorities in the Philippines and Vietnam are seen leading the hawkish camp in tightening policy as consumer prices in the Philippines risk absorbing sustained elevated costs arising from the Middle East conflict.

“Should energy prices remain elevated, the Philippines and Vietnam are expected to lead the tightening cycle,” Singapore-based DBS Bank Ltd. wrote in a commentary published last Wednesday, April 15.

Against the backdrop of ongoing Middle East tensions, which have been disrupting the flow of global oil supply, DBS flagged the Philippines as facing a combination of slowing economic growth and rising inflation.

“The Philippines faces a potential stagflationary shock this year, with growth witnessing a weak handover from last year, while inflation comes off a low base, and the peso remains under pressure,” said DBS senior economists Radhika Rao and Han Teng Chua.

“Still, a modest scale of rate increases is a possibility within the year if price risks prevail,” they said.

The domestic economy has suffered from dampened public and investor confidence following the eruption of a flood-control corruption scandal. Output growth, measured by gross domestic product (GDP), slowed to a post-pandemic low of 4.4 percent in 2025 due in part to the resulting fiscal squeeze, particularly on public works.

Meanwhile, the Philippine peso has started gaining upward momentum following its recent slump to record lows nearing the ₱61:$1 level due to market volatility caused by the flare-up of United States (US)-Iran tensions.

DBS, in a separate commentary published on Friday, April 17, said it expects the Bangko Sentral ng Pilipinas (BSP) to keep the 4.25-percent benchmark rate unchanged when its Monetary Board (MB) decides on the policy stance on April 23, seeing it steady at this level through next year.

It noted that the BSP, like the Bank of Indonesia (BI), is “increasingly aligned in confronting inflation dynamics, capital flow volatility, and exchange rate pressures.”

However, the Singaporean lender noted that BSP Governor Eli M. Remolona Jr. signaled a more positive outlook on economic expansion on the back of a likely recovery in public spending. Such optimism allows the BSP to shift its focus to stabilizing consumer prices, which have surged over the past month.

Inflation quickened to 4.1 percent in March, the fastest price growth in nearly two years. It also breached the government’s ceiling of four percent.

“In our read of the likely sequence among Association of Southeast Asian Nations (ASEAN) central banks, the Philippines is in the hawkish camp, leaving the door open to modest tightening moves this year if price risks prevail, as retail fuel prices are prone to swings in line with global prices,” DBS said.

In an April 17 report, Dutch financial giant ING said the Philippines continues to be among the region’s most exposed economies to oil price movements, leading to a downward revision of its 2026 GDP growth forecast to 4.5 percent.

With growth expected to remain subdued and assuming geopolitical tensions ease in the near term, ING said the baseline view is for the BSP to keep policy rates unchanged next week, although “Thursday’s decision is likely to be close.”

ING noted that headline inflation has moved above the BSP’s target range, and monetary policymakers have repeatedly stressed that maintaining price stability remains the key anchor of monetary policy.

Also on April 17, Singapore-based United Overseas Bank Ltd. (UOB) said its economist, Jasrine Lok, is among those expecting the BSP to stay on hold, arguing that the central bank may look through supply-driven inflation pressures and maintain its policy rate at 4.25 percent, given ongoing uncertainty related to Middle East tensions.

For UOB, the BSP is expected to remain cautious about potential second-round effects on inflation while continuing to assess the pace of recovery in domestic demand.

The Singapore bank noted that a Bloomberg poll showed a majority of economists expect a 25-basis-point (bp) hike in the overnight borrowing rate to 4.5 percent.

Meanwhile, S&P Global Ratings said emerging market (EM) central banks, including the Philippines, are likely to maintain a cautious stance on interest rate adjustments amid shocks brought about by geopolitical rifts.

“March consumer price inflation already shows the initial impact of higher oil prices, especially through costlier gasoline and diesel prices,” S&P wrote in a report published last Thursday, April 16. The BSP earlier said pronounced second-round effects would trigger policy tightening at upcoming policy meetings.

Last month, the BSP decided to keep the key interest rate unchanged on well-anchored inflation expectations.

“We expect most EM central banks, which were cutting rates, to stay on hold until there is more clarity over the length of the war and its impact on inflation. If energy prices remain high, some EM central banks may increase interest rates, especially if inflation expectations start heading higher,” S&P said.