BSP ready for monetary policy adjustments amid growing inflation risks

By Katherine K. Chan, Reporter

The Bangko Sentral ng Pilipinas (BSP) said it may take “all necessary monetary actions” to keep inflation in check amid rising price pressures after the April print exceeded its estimate.

“The April 2026 inflation of 7.2% settled above the BSP’s announced forecast range of 5.6% to 6.4%, highlighting the upside inflation risks emanating from the global oil price shock,” the central bank said in a statement released late on Tuesday.

The April figure, which reflected still elevated energy prices propping up costs of food and utilities, also exceeded the 5.5% median forecast in a BusinessWorld poll of 17 analysts.

However, April was not the first time the BSP’s forecast missed the mark. In March, it projected headline inflation to come in between 3.1% and 3.9%, only for the actual figure to be 4.1%.

Following this, the BSP assured the public that it will work to bring inflation back to its 3% target as part of its price stability mandate.

“Looking ahead, the Monetary Board will continue to be guided by incoming data,” the central bank said. “The BSP stands ready to take all necessary monetary actions to ensure that inflation returns to the three-percent target, consistent with its primary mandate of maintaining price stability.”

Last month, the BSP delivered its first 25-basis-point (bp) rate hike in two and a half years to bring the benchmark policy rate to 4.5%. This move ended its easing cycle where it slashed key borrowing costs by a cumulative 225 bps from August 2024 to February this year.

BSP Governor Eli M. Remolona, Jr. has said that they could keep lifting key rates to curb inflation, as they turn optimistic on the country’s growth prospects.

The central bank earlier raised its full-year inflation forecast to 6.3% from 5.1%, noting that the headline print will likely stay above 5% throughout the year.

For GlobalSource Partners Principal Advisor Diwa C. Guinigundo, the central bank can still resort to monetary policy tightening even as the energy crisis is largely supply-driven.

Hiking rates, the former central banker noted, would allow the BSP to counter second-order effects and keep inflation expectations anchored, especially amid lingering uncertainties over the war.

“Critics argue that monetary tightening is ineffective against supply shocks. That is only partially correct,” Mr. Guinigundo said in a May 5 commentary.

“A policy rate increase will not produce oil or harvest rice. But it can shape behavior, which is precisely what matters once second-round effects begin,” he added.

Mr. Guinigundo noted that BSP tightening would also curb demand, limiting firms’ ability to aggressively pass on costs, and help contain wage-price spirals in transport and services.

Meanwhile, Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said the odds for an off-cycle move remains low despite the over three-year high inflation in April.

“April’s 7.2% inflation, alongside the rise in core inflation to 3.9%, clearly tilts inflation risks further to the upside and warrants continued policy vigilance from the Bangko Sentral ng Pilipinas,” he told BusinessWorld in a Viber message. “However, an off‑cycle rate hike is not yet the base case.”

The BSP last raised the policy rate in an off-cycle meeting in October 2023, when the economy was still grappling with hot inflation amid a global oil shock triggered by the Russian invasion of Ukraine.

“A hike outside the regular policy calendar would be more likely if core inflation continues to rise, inflation expectations begin to de‑anchor, or peso pressures intensify,” said Mr. Asuncion.

“For now, we expect the BSP to retain a tightening bias, favoring measured, incremental adjustments within scheduled meetings, supported by strong communication to anchor expectations and contain second‑round effects,” he added.

The BSP chief told BusinessWorld last month that they are now focusing on core inflation among the many data points guiding their monetary policy decisions.

In April, core inflation, which excludes volatile food and fuel prices, quickened to an over two-year high of 3.9% from 3.2% in March and 2.2% last year.

For now, Mr. Guinigundo said policymakers should focus on building buffers against the swift transmission of global shocks into the local economy.

This includes maintaining a credible stance against inflation, closely monitoring spillover effects on wages and transport fares, rolling out targeted fiscal measures, and diversifying energy sources while enhancing logistics resilience.

“Because in this episode, what matters was not whether the war paused-but that its economic consequences never did,” Mr. Guinigundo said.