Fitch Solutions unit BMI expects the Bangko Sentral ng Pilipinas (BSP) to keep policy rates unchanged at its meeting on Thursday, April 23, as higher consumer prices weigh on household consumption and could further slow economic growth.

This forecast comes on the back of March inflation data, which came in at 4.1 percent, breaching the BSP’s two- to four-percent target range for the first time since July 2024.

Despite this breach, BMI still expects the BSP to hold its benchmark policy rate steady at 4.25 percent during its upcoming meeting.

Analysts said monetary authorities are likely to adopt a wait-and-see approach, looking past temporary, supply-driven price pressures amid weak economic growth. Output growth in 2025 stood at 4.4 percent, weighed down by dampened confidence following graft issues.

As domestic retail prices have been largely influenced by the recent blockade of the Strait of Hormuz, local price pressures are expected to remain affected by the surge in global oil prices.

BMI has revised its 2026 inflation forecast for the Philippines upward from 3.2 percent to 3.6 percent.

“We hold a cautious but positive outlook for consumer spending in the Philippines, with a slowdown in real household spending growth from 4.7 percent in 2025 to 4.5 percent year-on-year in 2026,” BMI said.

Diesel prices have surged by four-fifths compared to pre-war levels, with elevated energy costs expected to erode household purchasing power and weigh on domestic consumption throughout the year.

According to the Philippine Statistics Authority (PSA), the peso’s purchasing power fell to another record low of 75 centavos in March, as Middle East war-driven shocks further weakened consumers’ ability to spend.

Given declining purchasing power, BMI maintained a cautious outlook for the consumer sector, projecting real household spending growth to slow from 4.7 percent in 2025 to 4.5 percent year-on-year in 2026.

While spending is expected to reach ₱14.1 trillion in real terms—more than a quarter higher than 2019 levels—the trajectory remains constrained by multiple factors.

Additionally, high debt levels and rising debt-servicing costs are expected to influence consumer behavior.

“Spending will remain influenced by the elevated inflationary pressures as well as currently high debt levels, along with related debt servicing costs,” BMI said.

Despite these headwinds, BMI noted that a tight labor market could provide some support for spending, helping prevent a sharper slowdown in consumption.

Attention is now focused on the BSP as it balances price stability with the need to support a cooling economy, noting that supply-driven inflation typically warrants a policy hold, as interest rates are more effective against demand-driven price pressures.