The Bangko Sentral ng Pilipinas (BSP) is expected to maintain its benchmark interest rates at 4.25 percent throughout 2026 as sluggish economic growth offsets the need for tightening despite rising inflation risks, Fitch Solutions unit BMI said.
In a report released March 27, BMI said the escalation of the US-Iran conflict overturned its previous forecast of a rate cut for the central bank’s upcoming policy meeting on April 23.
While inflation is projected to breach the target range of 2 to 4 percent in the coming months, BMI analysts believe the BSP will remain on hold to avoid further hampering a weak economic recovery.
The outlook follows a surprise off-cycle meeting on March 26 where the BSP kept the policy rate at 4.25 percent. Policymakers cited supply-driven shocks, specifically rising global oil and fertilizer prices triggered by Middle East tensions, which have led to higher domestic fuel and food costs.
The BSP recently adjusted its 2026 inflation forecast to 5.1 percent from 3.6 percent, based on a higher Brent crude assumption of $85 per barrel. BMI also revised its own headline inflation forecast to 3.2 percent from a pre-conflict projection of 3.1 percent, raising its Brent crude price estimate to $70 per barrel.
BMI warned that a further upward revision is likely if the conflict persists through April. The group’s oil and gas team is considering raising its Brent crude forecast to $78 per barrel, which could add 0.4 percentage points to the average inflation forecast for 2026.
Despite these price pressures, BMI said rate hikes remain premature because the inflation is supply-driven, a scenario that monetary policy is not well-equipped to address.
The BSP also indicated that raising rates at this time would delay a recovery, especially as there are no signs of a pick-up in government capital expenditure.
“The BSP sees continued weak economic growth in 2026,” BMI said, adding that “raising the policy rate at this time would delay the recovery.”
However, upside risks remain if second-round inflationary pressures emerge later in the year.
BMI said that because fuel prices dictate the cost of logistics, a prolonged conflict could result in broad-based price increases that might eventually prompt the BSP to hike rates.
