Trumping monetary policy: time for BSP to tighten

PHILIPPINES - In Brief 21 Apr 2026 by Diwa Guinigundo
The Bangko Sentral ng Pilipinas (BSP) faces a clear policy imperative: shift decisively to tightening. The evidence is no longer ambiguous— inflationary pressures are broadening, deepening, and becoming more persistent. We therefore believe that the BSP will initiate tightening monetary policy in tomorrow's meeting of the Monetary Board.  What began as supply shocks from geopolitical tensions in the Middle East is now transmitting firmly into the demand side. Elevated fuel prices have cascaded into higher transport, freight, and logistics costs, with second-round effects spreading across goods and services. Utility rate adjustments are imminent. The restoration of rice tariffs further compounds the risk, given rice’s significant weight in the consumer price index. These are not isolated shocks; they are becoming embedded in the price system. More concerning is the behavior of expectations. Business and consumer outlooks are deteriorating, and inflation expectations risk becoming unanchored. Once this occurs, policy becomes more costly and less effective. The early signs are already visible: core inflation rose from 2.4% to 3.0% in the first quarter of 2026, signaling underlying and persistent price pressures. This is not demand strength—it is price-driven spending that will ultimately erode real purchasing power and trigger demand destruction. Recent policy decisions have lagged these developments. The BSP maintained an easing bias in February and paused in March despite intensifying geopolitical risks and a full-year 2026 inflation forecast of 5.1%. While initial shocks were supply-driven, the window to preempt second-round effects has narrowed. Delay now risks embedd...

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