BSP Expected to Maintain Policy Rates Through 2026 as Inflation Rises and Growth Slows
In a recent report released on Monday, March 30, 2026, BMI, a unit of Fitch Solutions, has projected that the Bangko Sentral ng Pilipinas (BSP) will likely keep its policy rates unchanged this year. This forecast comes amid heightened inflation projections and sluggish economic growth, with the central bank balancing these competing pressures.
Shift in Expectations Due to Middle East Conflict
BMI noted that its previous expectation of a rate cut at the BSP's April meeting has been upended by the ongoing US-Iran conflict. The conflict has triggered a supply-induced price shock, significantly driving up international oil prices. This has swiftly translated into higher domestic fuel costs, with diesel prices surging by over 60 percent since before the conflict began.
Additionally, BMI highlighted that fertilizer prices are rising rapidly, which is expected to feed into food inflation, further exacerbating price pressures in the Philippines.
Inflation and Growth Projections
In an off-cycle meeting last week, the BSP's Monetary Board decided to keep rates steady at 4.25 percent. The board revised its inflation forecast upward, now expecting an average of 5.1 percent for the year, compared to the earlier projection of 3.6 percent. This exceeds the BSP's target range of two to four percent, indicating significant inflationary challenges ahead.
Concurrently, economic growth is projected to remain weak, adding complexity to the BSP's monetary policy decisions. While inflation is accelerating, BMI stated that it is currently "premature to forecast rate hikes from the BSP." However, the firm emphasized that the central bank is more likely to hold rates rather than tighten them, given the sluggish growth environment.
Risks of Future Rate Hikes
BMI cautioned that a prolonged conflict in the Middle East could prompt the BSP to consider rate hikes later in 2026. The report explained that fuel prices heavily influence logistics costs, which underpin the modern economy. If the conflict extends beyond current scenarios, it could lead to strong, broad-based second-round inflationary pressures, forcing the BSP to act.
As such, BMI expects the BSP to maintain rates at 4.25 percent throughout 2026, barring any significant escalation in geopolitical tensions or unexpected economic shifts.
