By Katherine K. Chan, A reporter
WASHINGTON, DC — The Bangko Sentral ng Pilipinas (BSP) said it has room to raise policy rates as the National Government’s spending plan is expected to dampen the economy. from a sharp reduction in the middle power problem.
In a special interview no BusinessWorldBSP Governor Eli M. Remolona, Jr. he said the country will see a serious productivity gap as inflation and economic growth face mounting pressures from conflicts in the Middle East and the lingering effects of last year’s corruption of flood control.
However, he noted that the central bank will avoid any excessive tightening.
“We don’t want to tighten up too much,” said Mr. Remolona on the sidelines of the International Monetary Fund (IMF) and the World Bank’s 2026 Spring Meetings here on Tuesday.
“But there is something that needs to be strengthened, especially because the concern about growth is not as big as before, if we look at what we think will happen on the financial side,” he added.
Last month, the BSP held policy rates steady at an external meeting as it sought to calm markets amid growing uncertainty, and warned that rapid tightening risks delaying economic recovery.
The latest move in the cycle marked the BSP’s first rate cut since June 2024, halting its two-year easing cycle in which it cut the policy rate by a total of 225 basis points. It last raised its rates in an out-of-cycle announcement in October 2023.
The Philippine economy slumped last year as a corruption scandal involving flood control projects dampened investment, public spending and household consumption.
The Philippines’ gross domestic product grew by 4.4% in 2025, the worst seen since the outbreak of the COVID-19 pandemic.
Mr. Remolona said faster and better government spending in the second half could help ease growth problems, allowing the central bank to focus on maintaining price stability.
“The gap in results will be worse, worse than before. But we also know that government spending will increase in the second half of the year. And it will not only increase, it will improve government spending,” he said.
“So that will help growth, which makes our job a little easier. Then we can’t worry too much about the inflation side, especially since the results of the second round are starting to show,” he added.
The results of the second round of prices may emerge sooner than expected after inflation breached the central bank’s target a month ahead of their forecast, Mr. Remolona.
“Now we’re thinking maybe it’s spillover effects, and as you know we’re focusing on spillover effects, it might be happening… sooner than we thought,” he said.
In March, higher oil prices amid the Middle East conflict pushed inflation to a nearly two-year high of 4.1%, faster than the BSP’s forecast of 3.1%-3.9% and the 2%-4% annual target.
The central bank expected inflation to exceed its target in April, although Mr. Remolona said the weather loss was “absolutely unexpected.”
“The oil price shock itself is a global shock, and there is very little we can do about that shock. But we are concerned about the continuing effects of that shock,” he said. “It would spill over into the cost of transportation, the cost of fertilizer, and then the cost of food.”
Mr. Remolona earlier said the future policy decisions of the Finance Board will focus on mitigating second-order effects.
Meanwhile, the central bank governor noted that inflation expectations have remained stable so far, adding that they intend to increase their monitoring of consumer and business expectations.
“(Inflation expectations) are very positive. So far, they look solid,” Mr. Remolona. “Maybe we’ll do more research on expectations and not just look at the next two years but maybe look at five years ago.”
WAIT AND SEE
For now, the BSP official said they are still assessing how long they will stick to the wait-and-see approach as they weigh more data, with core inflation and 30% lower house prices among their main focuses in the April 23 policy review.
“We are looking at the information as it comes in… There is still information coming in that will help us make a decision on the 23rdrd,” said Mr. Remolona.
“We don’t just look at headline inflation. We’re more focused on core inflation, which lowers the volatile price elements. And then we also focus on this inflation based on the consumer basket of the bottom 30%,” he added.
At the same time, the Intergovernmental Group of Twenty-Four (G-24), of which the Philippines is a member, noted that the central banks of developing countries are now taking an “important balancing role” as energy shocks increase the risks of instability.
“Big banks have a balancing act,” said Olawale Edun, chairman of the G-24 and Nigeria’s finance minister, at a press conference on Tuesday. “They have an important role to play in balancing and helping steer the economy safely through the current energy crisis and political tensions.”
However, Akhtar Javed, first vice-chairman of the G-24 and executive director of the State Bank of Pakistan, said the growing pressures from the energy crisis are making it “really difficult” for monetary authorities to balance between reducing inflation and boosting growth.
“(T)his is a challenging time for the central bank, especially the G-24 countries, which were already facing some pressures due to costs and other related things. But this regional dispute has also put more pressure, and it is really difficult for the central banks to balance,” said Mr Javed.
G-24 Secretary Iyabo Masha said central banks should continue to wait as tightening monetary policy will have limited effects on commodity-driven shocks.
“What we see is mainly the issues affecting oil production, while the issues of service delivery do not respond well to the financial policy such as raising interest rates,” he said.
“So, I will say that unless the central banks see that some of these inflationary pressures are reflected in wages (and) are reflected in real growth, they should, at least on balance, wait and see how things develop. However, everything should be in a way that depends on the data,” he added.
