The Middle East crisis could force the Bangko Sentral ng Pilipinas (BSP) to reverse its monetary easing cycle and raise interest rates to prevent hyperinflation fueled by surging oil prices, economists and central bank officials said.
Citi Research said in a report that headline inflation in the Philippines could spike in March and April as fuel prices rise, although average inflation for 2026 and 2027 may stay within the target range of 2 percent to 4 percent. The research firm maintained its call for the BSP to pause but warned of a potential shift toward tightening.
“We do reserve one or two 25-bps hikes for a scenario where oil prices stay above $100 for multiple weeks. Such scenario would risk de-anchoring inflation expectations thereby requiring a policy response,” Citi Research said.
The financial research unit incorporated a temporary inflation increase due to the conflict, noting that fuel prices have risen between 13 percent and 38 percent compared to late February. Headline inflation is expected to touch the 4 percent upper bound of the target range in April before tapering to 3.6 percent by the end of 2026. The 2027 forecast remains in the 3 percent range, it said.
Beyond fuel, the updated forecasts cover expected increases in LPG prices and electricity tariffs following higher coal prices. Citi Research noted it has not yet incorporated second-round impacts such as potential public transport fare hikes.
The energy shock is also expected to dampen economic growth in the first half of the year. Household consumption growth already slowed to 3.8 percent in the fourth quarter of 2025, Citi Research said.
“The ongoing oil shock presents a headwind for the recovery,” Citi Research said. It noted that the government’s announcement of a four-day work week could reduce mobility and retail sales. Furthermore, remittances could suffer if Filipino workers are repatriated from the Middle East.
BSP Governor Eli Remolona Jr. said in a Bloomberg TV interview that oil reaching $100 per barrel could force monetary policy tightening.
“It’s possible that at $100 a barrel, we will begin to breach what we call our tolerance range” of 4 percent inflation as it could also push up the costs of other commodities, Remolona Jr. said.
The BSP has reduced its key rate by 225 basis points since August 2024. While the bank signaled it was nearing the end of its easing cycle, the geopolitical shift has changed the outlook.
“If oil prices rise sharply, persistently, then we have work to do,” Remolona said.
“We’re hoping we don’t have to tighten in the face of higher inflation,” he said.
