The Bangko Sentral ng Pilipinas (BSP) has tightened monetary policy anew as inflationary pressures continue to build, raising concerns over higher food and fuel costs that are expected to weigh on Filipino households and businesses throughout 2026. To contain rising prices, the BSP increased its Target Reverse Repurchase (RRP) rate to 4.50 percent, while the overnight lending and deposit rates were adjusted to 5.00 percent and 4.00 percent, respectively.
The rate hike marks a clear shift away from the central bank’s earlier easing cycle and reflects growing concern over persistent inflation, particularly from food supply disruptions and elevated global oil prices.
In a recent interview, British Chamber of Commerce of the Philippines Executive Vice Chairman Chris Nelson said inflationary pressures are being driven largely by external factors. “The Middle East conflict has obviously increased the price of oil. There are inflation pressures in the Philippines as in the UK,” he said, underscoring the global impact of rising energy costs following recent meetings in London with Philippine Ambassador to the United Kingdom Teodoro Locsin Jr.
Although inflation stood at 4.1 percent in March 2026, projections now place average inflation for the year at 6.3 percent — well above the BSP’s 2–4 percent target range. Nelson described the BSP’s latest move as precautionary, saying the central bank is “acting quickly to show that they intend to try and do their best on inflation.”
Still, Nelson stressed that monetary policy alone cannot address the deeper structural causes of inflation, particularly food supply constraints.
“Monetary policy can only do so many things,” he said. “Food is clearly the key because that affects the mass of the population.”
The Philippines remains vulnerable because of its dependence on imported fuel and exposure to global agricultural supply chains. Rising oil prices have increased transportation and production costs, while delayed fertilizer price shocks could further intensify food inflation.
HSBC Senior ASEAN Economist Aris D. Dacanay warned of a possible “second wave of inflation,” noting that fertilizer price increases typically feed into food prices within three to six months, potentially worsening existing inflationary pressures.
Given these risks, Dacanay said the BSP may need to raise interest rates further — potentially up to 6 percent under adverse scenarios — raising the risk of stagflation, where inflation remains high even as economic growth slows.
A similar policy challenge is emerging in the United Kingdom. The Bank of England has maintained its policy rate at 3.75 percent even as inflation remains at 3.3 percent, above its 2 percent target. Like the BSP, the Bank of England recognizes that monetary policy cannot directly offset global energy shocks but can help prevent broader inflation expectations from accelerating.
As Nelson explained, “Monetary policy cannot influence global energy prices. What it does is send a signal that inflation is important.”
The parallel challenges faced by both economies underscore the need for structural reforms alongside monetary tightening. In the Philippines, policy discussions have increasingly focused on lowering import duties and expanding food supply to help stabilize prices.
Nelson expressed strong support for measures such as expanding the Minimum Access Volume (MAV) Plus program.
“We would strongly urge that they do reduce those import duties,” he said, “so you keep basic commodities such as pork and rice at lower levels, therefore keeping inflation lower.”
Despite near-term uncertainties, investor sentiment toward the Philippines remains cautiously optimistic. While external shocks and rating outlook revisions have created concerns, Nelson emphasized the importance of sustaining reforms and maintaining policy continuity.
“Yes, caution is there, but what we have to look at is the longer term and how we can move forward with positive developments,” he said.
He cited reforms in digitalization, further economic liberalization, and efforts to maximize trade partnerships, including the Philippines-United Kingdom Joint Economic and Trade Committee (JETCO), participation in the Regional Comprehensive Economic Partnership (RCEP), and the country’s interest in joining the Trans-Pacific trading bloc.