Standard Chartered economists expect the Bangko Sentral ng Pilipinas (BSP) to keep its key policy rate unchanged at 4.25% in April, delaying a projected rate hike to June despite inflation breaching the central bank’s target band.
Jonathan Koh and Edward Lee now see only one 25-basis-point increase this year, likely in June, and have lifted their 2026 Consumer Price Index (CPI) forecast to 4.5% from 4.0% following stronger-than-expected March inflation.
Supply-driven inflation tempers policy response
Koh and Lee said the BSP is likely to remain cautious about tightening in the face of supply-driven price pressures, where higher rates have limited impact.
That stance mirrors the central bank’s decision at an off-cycle meeting in March to leave policy unchanged, even as non-core inflation accelerated.
Governor Eli Remolona has also emphasized that a rate hike, while a typical response to rising inflation, would be “painful” and could slow the economic recovery when price pressures are coming mainly from supply shocks rather than demand.
March inflation jumps above target and forecasts
Headline inflation accelerated to 4.1% in March 2026, the highest since July 2024 and well above February’s 2.4%. The print broke through the government’s 2%–4% target range and exceeded the BSP’s own 3.1%–3.9% forecast corridor.
The jump was driven largely by external shocks, notably an oil crisis linked to conflict in the Middle East. Transport costs surged 9.9% year-on-year in March after a 0.3% decline in February.
Despite the headline spike, seasonally adjusted month-on-month core inflation remained within its usual trend, suggesting that cost increases from non-core components have not fully passed through to broader prices.
Focus on expectations and low-income households
Remolona has reiterated that policy decisions will be guided by three indicators:
- inflation expectations
- core inflation
- price levels facing the lowest 30% of households
Standard Chartered highlighted that expectations appear well anchored. March inflation for lower-income households stood at 4.2% year-on-year, almost in line with the national 4.1% rate, indicating that poorer households are not yet seeing disproportionate price pressures relative to the overall economy.
Growth slowdown complicates BSP’s task
The BSP’s caution is also shaped by a weaker growth backdrop. The Philippine economy grew 4.4% in 2025, slowing from the previous year. The central bank projects softer growth in 2026.
Other research houses have taken a similar view. Nomura, for example, has cut its 2026 growth forecast to 5.0%, citing softening momentum and tighter global financial conditions.
Ratings agency S&P Global has shifted its outlook on the Philippines from “positive” to “stable”, expecting the BSP to maintain a broadly neutral policy stance through the rest of the year as it weighs inflation risks against slowing activity.
One hike still expected as risks tilt to higher prices
Even with the current pause, Koh and Lee still expect one rate increase later in 2026 to reinforce price stability.
They flagged several upside risks to inflation in the coming months:
- faster government fiscal spending
- potential transport fare increases following higher fuel costs
- rising rice and restaurant prices amid elevated fertilizer and input costs
- a weaker peso feeding into higher imported inflation
Together, these factors could keep inflation above target for longer, forcing the BSP to deliver a delayed but measured rate hike once it gains more clarity on the durability of price pressures and the resilience of domestic demand.
For traders, the combination of above-target inflation, a cautious central bank and softer growth outlines a policy path that is likely to stay on hold in April, with a bias toward a single, data-dependent move higher later in the year.
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