Higher prices or slower growth? BSP faces policy tug-of-war
By Derco Rosal
Published Apr 20, 2026 12:00 am
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Updated Apr 18, 2026 02:16 pm
Private sector economists are split over whether the Bangko Sentral ng Pilipinas (BSP) will raise interest rates this week, as the need to anchor inflation expectations and defend the peso battles concerns over the fragile economic recovery.
Of 10 economists surveyed, five expect a 25-basis-point hike to the benchmark rate on Thursday, April 23. Proponents of a hike argue that the BSP must act to curb accelerating consumer prices and ease pressure on the peso, which has faced volatility amid geopolitical conflict.
The remaining five analysts anticipate a pause, suggesting that monetary tightening would do little to address supply-driven shocks and could instead derail growth.
Ayala-led Bank of the Philippine Islands (BPI) expects a quarter-point increase, noting that the balance of risks has shifted toward a more persistent inflation environment.
“While current pressures remain largely supply-driven, historical experience suggests prolonged shocks tend to spill over into demand-side dynamics, increasing the risk of de-anchored inflation expectations,” BPI lead economist Emilio S. Neri Jr. said.
Neri warned that full-year inflation could “easily” average above five percent, “with monthly prints potentially approaching at least eight percent if Dubai oil prices remain persistently above $100 per barrel.”
If realized, this average consumer price growth would fall short of the government’s ceiling of four percent, which had just been breached in March, when the print stood at 4.1 percent.
Neri also noted that even when the dust finally settles, the damaged energy infrastructure could still push oil costs higher.
“Damage to energy infrastructure can persist beyond the conflict itself, reinforcing the risk of structurally higher oil prices,” while the Strait of Hormuz remains “operationally constrained,” he said.
He also pointed out the country’s gross international reserves (GIR), or forex buffer, which stands the risk of accelerated thinning. GIR declined to a seven-month low in March, which Neri said signals “gradually eroding external buffers amid sustained global pressures.”
“Without a rate hike, the speed of GIR depletion...could lead to significant peso depreciation,” creating a “forex-inflation feedback loop” that may require tighter policy even during a supply shock.
Foreign lenders—HSBC, MUFG Bank Ltd., and Deutsche Bank AG—have also penciled in a quarter-point increase in key borrowing costs, asserting that local monetary authorities would prioritize calming price swings.
“Faced with stagflation risks, the BSP will likely prioritize its battle against inflation,” said Aris Dacanay, HSBC senior economist for the Association of Southeast Asian Nations (ASEAN). He added that the duration of the Middle East conflict would be a deciding factor as to how long the hiking cycle would last.
“The Philippine economy is grappling with an inflation shock that is getting tougher by the day, amid a growth outlook that stumbled well before the conflict in the Middle East escalated,” Dacanay noted.
For HSBC, maintaining a hawkish tone could help keep inflation expectations “anchored” given the local economy’s exposure to a food shock.
MUFG economists asserted that the BSP’s anticipated hike should be supported by forward guidance of a pause afterward. “That would be consistent with a central bank trying to defend credibility and lean against peso weakness,” MUFG said.
Additionally, Reyes Tacandong & Co. senior adviser Jonathan Ravelas’s hike assumption stressed a calibrated, preemptive response to looming price and currency pressures.
“Small, measured tightening now to anchor inflation expectations, support the peso, and preserve credibility, instead of risking much bigger hikes later,” Ravelas said.
Hold for sustained relief
On the contrary, five other economists argue for a wait-and-see pause to align with recent borrowing measures and protect fragile economic growth from supply-side shocks.
The Philippine National Bank (PNB) believes the BSP should keep the key lending rate unchanged, as tightening would only offset relief measures being implemented.
“Increasing the cost of financing now seems at odds with the earlier move to provide loan relief amid the output constraints stemming from the supply shock,” said Alvin Joseph A. Arogo, first vice president and chief economist at PNB.
“The pandemic experience also showed strong government spending still resulted in a recession despite aggressive government spending,” Arogo noted. “Thus, monetary tightening this soon could seriously put at risk prospects for growth recovery without doing much dent on inflation.”
Standard Chartered Bank shifted from a hike previously to a hold, asserting that upward adjustments to interest rates remain impotent in tackling supply-led shocks, according to Jonathan Koh, the lender’s Asia economist and forex analyst.
“BSP is likely reluctant to tighten policy in response to a supply-driven inflation increase, where monetary policy effectiveness is limited—consistent with its decision to stay on hold at the off-cycle March meeting,” Koh said.
Koh argued that anchored inflation expectations, benign core inflation, and price growth for the poorest households are broadly in line with overall inflation, reinforcing a pause decision.
Despite this less hawkish tilt, Koh clarified that the bank does not completely rule out a call for a hike, “but just delay it to the next meeting” in June, as it expects inflation pass-through to eventually pick up due to fiscal spending and food prices.
For China Banking Corp., the monetary authorities are likely to be on a wait-and-see mode considering highly uncertain global conditions, with the demand side showing “signs of softening.” Such a trend weakens the case for immediate monetary tightening.
Similarly, Singapore-based UOB and think tank Capital Economics priced in a pause, with the former pointing to supply-shock factors.
“At this stage, we doubt that developments have shifted in a way for BSP to rethink its decision and opt for a hike next week,” Capital Economics also said, referring to the central bank’s pause decision in its recent off-cycle meeting.