MANILA — The Philippines' central bank governor has indicated that interest rate increases remain on the table as the country grapples with rising inflation driven by global oil price shocks.
Governor Eli Remolona Jr. of the Bangko Sentral ng Pilipinas (BSP) stated in a recent interview that monetary authorities have "room to tighten" policy rates to address inflationary pressures, while expressing optimism that increased government spending could help cushion economic growth from the effects of tighter monetary conditions.
"We also know that government spending will pick up in the second part of the year," Remolona said. "And not only will it pick up, it will be better quality government spending. So that will help growth, which makes our job a little bit easier."
The comments come as Philippine inflation accelerated to 4.1% in March, breaching the central bank's target range and reaching its highest level in nearly two years. The surge has been attributed primarily to oil price increases stemming from ongoing Middle East conflicts, which prompted the government to declare a national energy emergency.
Despite the inflationary pressures, the Monetary Board opted to maintain the benchmark interest rate at 4.25% during an unscheduled meeting on March 26. Remolona explained that raising rates at that time would have done little to address supply-side inflation while potentially straining an economy still recovering from recent challenges.
Looking ahead to the scheduled Monetary Board meeting on April 23, Remolona emphasized a balanced approach, stating, "We don't want to tighten by too much. But there's room to tighten, especially because the concern about growth is not as big as before, given what we think will happen on the fiscal side."
Analysts have noted the Philippines' vulnerability to stagflationary risks, with DBS Group Research identifying the country as likely to lead monetary tightening in Asia should energy prices remain elevated. The research firm warned of "a potential stagflationary shock this year, with growth witnessing a weak handover from last year, while inflation comes off a low base and peso remains under pressure."
The central bank's careful calibration of monetary policy reflects the delicate balance between containing inflation and supporting economic recovery, with upcoming government spending plans expected to play a crucial role in maintaining growth momentum.