Philippine Central Bank Lifts Rate to 4.5% as War Fuels Inflation

The Philippine central bank raised its benchmark interest rate by 25 basis points on Thursday, a direct response to escalating inflation risks fueled by the Middle East war that has tightened global energy supplies and tested the resilience of import-dependent Asian economies.

"For the energy importers, those that have very little to none energy reserves of oil and gas, the situation is much more difficult,” IMF Managing Director Kristalina Georgieva said at a recent press briefing. “And I very much sympathize with the people in the Philippines because I know that your country does face that difficulty.”

Bangko Sentral ng Pilipinas lifted its overnight reverse repurchase rate to 4.50% from 4.25%, the first change since its last easing cycle paused in August 2024. The move comes after Philippine inflation accelerated to 4.1% in March, breaching the central bank’s 2% to 4% target for the first time in nearly two years. The International Monetary Fund recently slashed its 2026 growth forecast for the Philippines to 4.1% from a 5.6% projection in January.

The rate hike underscores the painful trade-off facing policymakers in the region: defend currencies and anchor inflation expectations at the risk of throttling economic recovery. With the IMF warning that at least a dozen countries may need financial aid to cope with the energy shock, the BSP's decision highlights a broader pivot toward monetary tightening across emerging markets that are most exposed to the conflict's fallout.

A Difficult Situation

The Philippines’ heavy reliance on imported energy has made it particularly vulnerable to the supply disruptions emanating from the Middle East. President Ferdinand R. Marcos, Jr. placed the country under a national state of energy emergency last month, citing the threats to the nation’s energy supply as the war drags on.

The IMF’s latest World Economic Outlook painted a challenging picture, cutting the country’s 2026 gross domestic product (GDP) growth forecast to 4.1%. In a separate blog, the IMF noted that the Philippine central bank could have paused to preserve easing space, a path it chose not to take. The decision to hike suggests the BSP is prioritizing inflation control, even as it could weigh on an already slowing economy.

BSP Governor Eli M. Remolona, Jr. told BusinessWorld on Tuesday that expected relief from government fiscal reforms had opened the door for monetary policy tightening, suggesting the central bank feels it has some room to maneuver despite the growth headwinds.

Asia's Resilience Tested

The shockwaves from the Middle East are reverberating across Asia, a region highly dependent on imported oil and gas. The conflict is “raising inflation, weakening external balances, and narrowing policy options,” according to a recent IMF blog post by Andrea Pescatori and Krishna Srinivasan.

The multilateral lender now sees Asia expanding by a slower 4.4% this year. It warned that if the energy shock intensifies, regional growth through 2027 could be cumulatively reduced by 1% to 2%. This challenging environment has prompted calls for greater regional cooperation.

“Build that integration. You will benefit from it in a more shock-prone world,” Ms. Georgieva urged ASEAN members, noting that stronger regional trade could help cushion economies from external volatility. While some energy-exporting nations in the region may benefit from higher prices, the outlook for importers like the Philippines remains fraught with uncertainty.

This article is for informational purposes only and does not constitute investment advice.