The Bangko Sentral ng Pilipinas (BSP) is expected to raise interest rates this week, marking the Philippines' first monetary tightening move in over two years and positioning it among the first Asian economies to pivot in response to surging oil prices.
A recent poll of 16 economists reveals that 10 anticipate the central bank's Monetary Board will increase the benchmark rate by a quarter point to 4.5% at its April 23 meeting, while the remaining six forecast rates will hold steady at 4.25%.
"The BSP will be mindful not to tighten too aggressively as the governor rightly pointed out that monetary action has limited impact on combating supply side inflation," said Nicholas Mapa, chief economist at Metrobank.
This potential hike would be the first since October 2023, when the BSP implemented an off-cycle increase as food prices drove inflation above 6%. If implemented, the Philippines would become only the second Asian economy to tighten policy following Singapore's recent move, assuming Bank Indonesia maintains current rates at its April 22 meeting.
The Philippines declared a national energy emergency amid Middle East turmoil, facing supply-driven inflation that reached a near two-year high of 4.1% in March—exceeding the central bank's 2-4% target range. Economists note that limited government support has allowed higher energy costs to quickly spill over into other goods.
"The second-round effects of the oil shock quickly permeated in the economy," said Aris Dacanay, senior ASEAN economist at HSBC. "These spillover effects are not to be ignored."
While rate hikes typically aim to curb demand-driven inflation by encouraging households to reduce spending, the current supply-side challenges present a complex scenario. Some economists argue that raising rates could help anchor inflation expectations, preventing consumers from anticipating faster price increases that might lead to wage demands and further inflationary pressures.
However, Domini Velasquez, chief economist at Chinabank, suggests the BSP might adopt "a prudent wait-and-see approach" given the delicate balance between combating inflation and supporting economic recovery from recent confidence shocks.