BSP Holds Rates as Peso Plummets to Record P60.30 Low
The Bangko Sentral ng Pilipinas (BSP) kept its benchmark policy rate unchanged at 4.25% during an unscheduled meeting on March 26, 2026, opting for a cautious pause. This decision contrasts sharply with mounting market pressures, as the Philippine peso depreciated to an all-time low of P60.30 against the U.S. dollar on Monday. The currency's weakness is driven by a worsening energy crisis, which prompted President Ferdinand Marcos Jr. to declare a national energy emergency on March 24. While holding rates, the central bank issued a stark warning about inflation risks, signaling a potential shift toward a more hawkish policy in the near future.
Inflation Risks Intensify with Oil Nearing $100
The primary threat to the Philippine economy is imported inflation, fueled by instability in the Middle East that has pushed global oil prices toward $100 per barrel. As a net oil importer, the country is highly vulnerable to energy price shocks. The situation has divided analysts, with some anticipating a rate hike as soon as April if oil prices remain elevated. Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri, Jr. anticipates a hike at the April 23 meeting should oil stay above the $100 mark. This aligns with comments from BSP Governor Eli M. Remolona, Jr., who has acknowledged that a rate increase is possible if inflation breaches the 4% target.
Growth Stalls as Infrastructure Spending Craters 45.2%
Compounding the BSP's policy challenge is a significant economic slowdown. ANZ Research recently downgraded its 2026 GDP growth forecast for the Philippines to 4.7% from 5.0%, citing a severe contraction in government investment. Public infrastructure spending, a key growth driver, plunged 45.2% year-on-year in November, marking five straight months of decline. This domestic weakness limits the central bank's ability to tighten monetary policy aggressively to defend the peso and curb inflation, as higher borrowing costs could further suppress economic activity. The BSP now faces a difficult trade-off between stabilizing prices and supporting a decelerating economy.
