Oil shock may trigger policy response – BSP

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March 18, 2026 | 12:00am

As Inflation risks resurface

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) warned that a fresh surge in global oil prices driven by tensions in the Middle East could prompt policy action, as risks to inflation and financial stability re-emerge after a period of easing.

BSP Deputy Governor Zeno Abenoja said the central bank is now closely monitoring whether the impact of higher oil prices would be temporary or more persistent, a key factor that will determine the direction of monetary policy in the coming months.

“What we are looking at is whether there are signs of further disruptions of the initial impact of the oil price increase, and then the second one, how persistent will this impact be,” Abenoja said.

He noted that if the shock proves to be transitory, inflation could remain manageable.

“But if we see further disruptions in supply chains, further increases in prices, particularly oil prices, and that could persist for some months, then that may prompt the Monetary Board to consider policy action moving forward,” he said.

At its February meeting, the BSP cut policy rates by 25 basis points as domestic conditions supported a more accommodative stance. This brought total rate cuts to 225 basis points since August 2024.

However, Abenoja said the escalating conflict in the Middle East has complicated the outlook.

He identified three main channels through which the shock could affect the Philippine economy: external transactions, financial markets and commodity prices.

On the external front, Abenoja said the impact could be felt through imports as well as remittances from overseas Filipino workers, particularly those based in the Middle East.

Financial markets have also shown signs of stress. The peso, which had earlier strengthened, has reversed course in recent weeks. Yields on government securities across various tenors have also increased, reflecting tighter financial conditions. Equity markets have likewise weakened.

The third transmission channel is through commodity prices, particularly oil, which could spill over to domestic prices and push inflation higher.

“This is quite unfortunate indeed, to come at a time when… sentiment continues to be relatively weak in the domestic economy,” the deputy governor said.

The BSP also continues to monitor global commodity prices, including oil, wheat, rice and fertilizer, as well as domestic pressures such as electricity rate adjustments, transport fares and potential wage increases.

Despite rising risks, the BSP said it would remain disciplined and data-driven in its decision-making. The central bank also signaled its readiness to safeguard financial stability, including providing liquidity support if market conditions worsen.

Young Kim, analyst at Moody’s Ratings, said inflation in the Philippines is still expected to remain within the BSP’s two to four percent target over the next two years, although risks have tilted to the upside amid rising oil prices and higher freight and input costs.

He said a more adverse scenario, particularly if global oil prices stay above $100 per barrel, could push inflation beyond four percent. Such a scenario could complicate monetary policy, as central banks balance rising inflation against still-subdued economic growth.

While Moody’s does not provide specific forecasts on policy rates, Kim said there is a possibility of a shift in policy direction under a more severe inflation scenario, noting the BSP’s track record of responding decisively to supply-driven shocks.

“If the broad input prices were to be much more inflationary… there could be some reversal on the policy direction,” he said.