THE Bangko Sentral ng Pilipinas (BSP) kept its key policy rate unchanged at 4.25 percent, opting for caution as rising global oil prices threaten to push inflation higher while dampening economic growth.
At an off-cycle policy meeting on Thursday, March 26, 2026, BSP Gov. Eli Remolona Jr. said the decision to hold rates reflects the “unusual” nature of current economic conditions, where inflation pressures are largely driven by supply-side shocks—particularly from volatile oil markets—rather than demand.
In a virtual press briefing, he acknowledged that while inflation risks are increasing, tightening monetary policy would have a limited impact on oil-driven price pressures.
“Monetary policy cannot do very much with regard to the current upside risks to inflation,” Remolona said, noting that the central bank’s tools are more effective in managing demand rather than supply disruptions.
Growth outlook downgraded
Amid the challenging external environment, the BSP revised its 2026 growth forecast downward to 4.4 percent, from an earlier estimate of 4.6 percent, citing weaker investment and household consumption due to elevated global uncertainties.
Economic momentum is expected to remain subdued in the first half of the year, with spillover effects from earlier weakness compounded by the oil price shock. However, the central bank sees a potential recovery in the second half, supported by government spending and fiscal measures.
Looking further ahead, the BSP expects growth to rebound to 5.9 percent in 2027, describing the outlook as a possible “recovery with a vengeance.”
Oil prices drive inflation risks
The central bank flagged oil prices as the dominant risk to both inflation and growth, with scenarios of prolonged elevated prices under close watch. While a spike to $200 per barrel is considered an “extreme” case, officials said such a scenario could force the BSP to raise rates more aggressively.
Higher fuel costs are also seen feeding into broader price pressures through second-round effects, including increased transport fares, higher food prices due to rising fertilizer costs, and potential wage adjustments.
Despite these risks, Remolona noted that inflation expectations remain “well anchored,” providing room to keep policy settings unchanged for now.
Policy stance: Balancing inflation and growth
The decision to pause underscores the BSP’s balancing act between containing inflation and supporting economic recovery. While price stability remains its primary mandate, the central bank emphasized that sustaining growth is also a key consideration, especially as external shocks weigh on domestic activity.
Officials also signaled readiness to deploy additional tools if needed, including liquidity measures and regulatory relief similar to those implemented during the pandemic to support vulnerable sectors and small businesses.
For now, the BSP said it will continue to take a data-dependent approach, with the possibility of further off-cycle meetings if conditions change significantly ahead of its next scheduled policy review. / KOC