By Katherine K. Chan, A reporter
TEPID ECONOMIC GROWTH is possible forcing the Bangko Sentral ng Pilipinas (BSP) to pause until the end of the year as oil prices are expected to rise amid the war in the Middle East. inflation, said Fitch Solutions unit BMI.
In a statement on Monday, BMI said oil price pressures could push inflation past the bank’s 2-4% target in the coming months, bringing it to a full-year average of 3.2%. This was slightly higher than its previous average of 3.1%.
“While we had previously expected the BSP to cut rates at its April meeting, the US-Iran conflict raised the prospect,” BMI said. “Inflation is likely to breach the BSP’s inflation target of 2-4% in the coming months, but slower growth will keep the BSP subdued rather than strengthened.”
This came after the BSP maintained its policy stance at an off-cycle meeting last week as it looked to have passed the first round of inflation in the ongoing oil crisis, adding that tightening now could delay economic recovery.
The BSP is scheduled to hold a regular policy review on April 23.
The war in the Middle East continues to escalate a month after the US and Israel attacked Iran for the first time, as Iran still denies the accusations of the US President Donald J. Trump.
Locally, pump prices remain high as ongoing disruptions threaten the country’s oil supply. The Philippines imports more than 90% of its oil from the Middle East, making it vulnerable to the current oil shock.
Last week, the Bank revised its macroeconomic forecasts, as inflation is now seen to reach 5.1% this year from 3.6% previously.
It also cut its growth forecast to 4.4% from 4.6% in 2026 but kept its 5.9% forecast for 2027.
For BMI, tightening this early would be a “premature” move by the central bank as price pressures prove to be supply-driven and growth remains weak.
“All that said, we think it’s too early to predict a rate hike from the BSP,” he said. “Although inflation will rise sharply, the BSP notes that it will be driven by supply and monetary policy is not in a good position to deal with that. Moreover, slower growth will reduce the case for inflation.”
The BSP last raised its rates in October 2023 in a cyclical move. It followed an easy path from August 2024, reducing the main borrowing cost by a total of 225 basis points (bps) to a more than three-year low of 4.25%.
Its last few cuts came amid the collapse of flood control corruption that dragged growth down to a post-pandemic 4.4% last year.
Marco Antonio C. Agonia, an economist at the University of Asia and the Pacific, also sees the BSP pausing at its April meeting as he noted that the price results of the second round will likely be seen during the second quarter.
“Currently, we are seeing another level of holding in the BSP’s April meeting as the issue of basic services has not been resolved and the economy continues to post a modest performance,” said Mr. Agonia told. BusinessWorld by email.
“The upcoming March inflation reading will mostly see the first results in the headline print. So far, we are seeing the first signs of the second round results in transportation, food, and to some extent, food service jobs,” he added.
Jonathan L. Ravelas, senior consultant at Reyes Tacandong & Co., also noted that the second round of inflation may be felt after two to three months, with a greater risk from wages.
“The effects of secondary price increases usually appear after two to three months, and early pressure is now visible in transport, transportation, food distribution, and energy-intensive industries – an important risk to watch for wages,” he said via Viber.
On the other hand, Deutsche Bank Research still expects the BSP to raise its benchmark rate by 25 bps to 4.5% next month to prioritize its mandate for price stability as rising inflationary pressures weigh on the policy outlook.
“The effects of the first round of inflation may be reflected in the data as soon as March and start to break the upper limit from April as the spillover effects of the second round emerge,” it said.
“The gradual tightening of policy settings from April will provide a strong signal of the BSP’s commitment to continuously manage inflationary pressures and maintain macroeconomic stability,” it added.
BMI also warned of possible price increases later this year, especially if second-round price pressures worsen amid the protracted Middle East war.
“Given that fuel prices largely control the transportation costs that underpin the modern economy, a prolonged contraction even beyond our ‘Expansion to End’ scenario will leave inflationary pressures in the second round strong, causing the BSP to rise,” he said.
However, Pantheon Macroeconomics Emerging Asia Economist, Miguel Chanco and Asia Economist Meekita Gupta said the BSP’s move last week has increased the rate of inflation.
“Our main takeaway from this anticlimactic off-cycle meeting is that the planned sit-down in three weeks no longer looks ‘live’ – assuming global oil prices do not reach new highs – as the Board has set a very high bar for any action,” they said in a separate paper on Monday.
Although they see the BSP stalled till the end of 2027, Mr. Chanco and Ms. Gupta noted that there is still a risk of consolidation late this year or early next year.
