Samarkand, UZBEKISTAN — The Asian Development Bank (ADB) said central banks should be cautious about raising interest rates too quickly in response to supply shock-driven inflation, even as the Bangko Sentral ng Pilipinas (BSP) is now widely expected to tighten monetary policy further after April inflation surged to a 37-month high.

In a CNBC interview on Tuesday, May 5, ADB chief economist Albert Park said monetary authorities should avoid treating oil-driven price shocks in the same way as demand-driven inflation.

“I think central banks have to be careful here. On the one hand, the usual advice when there’s a supply-price shock like we’re seeing is to not try to raise interest rates, to cope with that type of inflation because that’s not what’s causing inflation, the interest rate. It is really the supply, the price of oil and gas,” Park said.

For the ADB’s host country, Park said the problem is more pronounced because the Philippines remains heavily dependent on imported oil, particularly from the Middle East.

“As we know, there’s a real premium on getting oil now, and that has caused prices to rise faster than expected, and led to the high inflation numbers there,” he said.

At the same time, Park said central banks may need to consider acting once higher energy costs and other input prices begin spreading across the broader economy and shaping inflation expectations.

He cited higher prices of fertilizer, petrochemical inputs, semiconductors, helium, and sulfur as among the costs that could eventually work their way into final prices.

“If that starts to happen and price expectations start to change across the different goods and services that are being produced, then central banks may want to start then to consider trying to reduce those inflationary expectations, which is really their role,” Park said.

These second-round effects are already expected to emerge in food prices across the region, particularly in net importer economies like the Philippines, according to think tank Oxford Economics.

“Within Asia, emerging markets (EMs) are the most exposed due to high food CPI [consumer price index] weights and import dependence, particularly in the Philippines,” Oxford Economics economist Adam Ahmad Samdin said in a May 5 report.

For Oxford Economics, “risks to food inflation remain tilted to the upside from prolonged supply constraints [and] climate shocks,” adding that “broader spillovers into related baskets like food services are likely” across the region.

The think tank expects elevated food inflation to persist until the middle of next year, “with the most persistent pressures likely concentrated in India, Indonesia, and the Philippines.”

Oxford Economics noted that food accounts for up to 40 percent of CPI in those three economies, amplifying the impact of price increases on headline inflation and household purchasing power.

This warning comes after Philippine inflation accelerated to 7.2 percent in April from 4.1 percent last March, breaching the BSP’s two- to four-percent target range of manageable annual price increases for the second straight month.

Amid heightened inflation risks, the BSP raised key interest rates by 25 basis points (bps) last month, bringing the policy rate to 4.5 percent. BSP Governor Eli M. Remolona Jr. had also signaled the possibility of further monetary tightening, including off-cycle policy decisions.

The peso’s weakness has added another layer of pressure, after the local currency slid to a record low closer to the ₱62:$1 level last week.

Park noted that currency depreciation makes imported energy more expensive, although it can also support exports and economic recovery.

For him, governments should ensure that financial markets remain orderly, but warned against trying to fight fundamental exchange-rate adjustments.

“I think the focus for central banks on interest rates should still be much more focused on inflation than on exchange rates,” he said.

Despite Park’s caution, Singapore-based Oversea-Chinese Banking Corp. Ltd. (OCBC) said in a May 4 report that it now expects the BSP to deliver two more 25-bp rate hikes this year, which would bring the policy rate to five percent by end-2026.

OCBC maintained its 2026 Philippine gross domestic product (GDP) growth forecast at 4.8 percent, but raised its headline inflation outlook to 5.8 percent for 2026 and 4.5 percent for 2027 from previous estimates of 3.9 percent and three percent, respectively.

The Singaporean bank said the spillover effects from the Middle East conflict will continue to create headwinds through elevated energy prices and supply-chain disruptions, which are expected to weigh on domestic demand.

OCBC also noted that Fitch Ratings’ negative outlook on the Philippines could constrain borrowing costs at a time when the fiscal deficit is projected at 5.3 percent of GDP this year.

Similarly, United Overseas Bank Ltd. (UOB) senior economist Julia Goh and economist Loke Siew Ting said in a May 5 report that they expect two additional 25-bp increases in the BSP’s target reverse repurchase (RRP) rate—one in June and another in the third quarter. This would lift the RRP rate to five percent, which UOB expects to be maintained through end-2026.

UOB raised its full-year 2026 inflation forecast to 7.5 percent from 5.5 percent, marking what it said would be the Philippines’ highest annual inflation rate since the global financial crisis (GFC) in 2008.

The also Singapore-based bank noted that the April inflation surge was driven by global energy and food price shocks linked to the Middle East conflict, as well as persistent peso weakness.

It warned that inflation could move toward—or above—10 percent by year-end if the conflict persists, due to unresolved energy supply disruptions, the continued closure of the Strait of Hormuz, base effects, and peso depreciation.

UOB cited that core inflation also rose to a 28-month high of 3.9 percent in April, while price increases broadened across transport, housing, utilities and other fuels, food and beverages, and restaurants and accommodation services.

Meanwhile, in relation to Fitch’s negative outlook on the Philippines, Park acknowledged that a longer war could place more pressure on fiscal resources as governments try to cushion the impact of elevated energy prices.

“The duration of this war is still very uncertain and, obviously, the longer it goes on, the greater pressure it will put on the fiscal space of countries that are trying to deal with the challenges associated with higher oil and gas prices in various ways, which require fiscal spending,” Park said.

Still, Park said investors and analysts should not be too quick to discount the prospects of the Philippines and the rest of the region.

Referring to Asia-Pacific, he pointed out that this region “has been the most resilient and dynamic part of the global economy.”

Park pointed out that the Philippines continues to make major investments in infrastructure and renewable energy (RE), adding that the country remains “on the right track” but needs help dealing with the current crisis.

He said the ADB is helping vulnerable countries cope with the impact of the Middle East conflict through increased budgetary support, new trade finance for oil and gas imports, policy loans, and the repurposing of existing loans.

For Park, governments face a difficult choice in protecting consumers and producers from high energy prices, as broad-based support could quickly eat up fiscal space.

“So we encourage governments to consider thinking about more targeted approaches to really focus on helping the poorer households get through this and allow price signals to pass through to consumers and producers so they can react and be more energy-efficient in their own consumption choices or in the way they produce goods and services,” Park said.