BSP says it can still take monetary action amid looming inflation risks

MANILA, 18 AUGUST 2026 —

MANILA — The Bangko Sentral ng Pilipinas (BSP) has left the door open for additional monetary tightening as persistent price pressures threaten to keep inflation elevated through 2027, pushing back the timeline for a return to the central bank’s 3% target to 2028.

The central bank now projects headline inflation to average 6.4% this year, before moderating to 4.5% in 2027 and 3.1% in 2028. BSP Deputy Governor Zeno Ronald R. Abenoja highlighted key risks, including elevated global oil prices and rising inflation expectations, which could prolong price pressures. “The BSP sees upside inflation risks, and this could emanate largely from higher global oil prices and higher inflation expectations,” he noted.

Private sector forecasts also suggest inflation will remain elevated in the near term before stabilizing near 3% by 2028 or 2029.

Inflation has remained above the BSP’s target range for five consecutive months, though July saw a slight improvement, with consumer prices rising 6.2% year-on-year, down from 6.4% in June. Year-to-date inflation averaged 5%. The central bank attributed stubborn price pressures to the lingering effects of global supply shocks, particularly in energy and food, where oil prices influence fertilizer costs. “Oil price shocks are not just about energy.

They are also about food prices because oil is also the source of much of our fertilizer,” Remolona explained.

The BSP has maintained a hawkish but measured stance since the Middle East conflict flared up in late February, initiating a tightening cycle in April as oil shocks accelerated inflation. The Monetary Board has raised policy rates by a total of 50 basis points in two consecutive meetings, bringing the benchmark rate to 4.75% in June—the highest level in over a year.

“To contain price pressures, the BSP has responded by tightening monetary policy twice this year,” Remolona said. “These were carefully calibrated moves to help slow down inflation, anchor inflation expectations, while recognizing the temporary weakness in growth.”

The central bank’s tightening measures have coincided with a slowdown in economic activity. GDP growth decelerated to 2.3% in the second quarter, marking the weakest performance since the 3.8% contraction in Q1 2021—excluding pandemic-era declines, the slowest growth in 16 years. Investment activity has been dampened by lingering effects of the flood control controversy, while household spending has weakened due to rising living costs.

Despite the economic slowdown, Remolona emphasized that the BSP remains prepared to act further if necessary. “We look at all the evidence and we are prepared to take further steps as necessary to ensure that inflation returns to target,” he said.

Last week, Remolona suggested that the weaker-than-expected Q2 growth could allow the BSP to adopt a less aggressive approach in future policy adjustments. However, he stressed that the battle against inflation is far from over, even as inflation expectations appear broadly anchored. Abenoja pointed to broadening price pressures, particularly in core inflation—which excludes volatile food and energy prices—as a key concern.

Core inflation, which had hit a 31-month high of 4.4% in June, eased slightly to 4.2% in July, but policymakers warn that second-round effects and prolonged supply shocks could sustain elevated price levels.

The Monetary Board is scheduled to hold its fourth policy review of the year on August 27, followed by meetings on October 22 and December 17. Analysts will closely watch these decisions, as the BSP balances its inflation mandate against the need to support an economy showing signs of strain.

For Malaysia and the broader ASEAN region, the BSP’s cautious yet proactive stance underscores the challenges faced by central banks in managing imported inflation risks, particularly from energy and food markets. While Malaysia’s inflation trajectory has been less volatile than the Philippines’, policymakers in both countries remain vigilant against external shocks that could destabilize price stability.

The BSP’s measured tightening approach also reflects a broader regional trend, where monetary authorities are prioritizing inflation control without stifling fragile economic recoveries.

Stakeholders, including business groups and financial markets, will be monitoring the BSP’s next moves closely. The central bank’s commitment to bringing inflation back to target—even at the cost of slower growth—signals a determination to restore price stability, a priority shared by regional peers. As the Philippines navigates this delicate balance, the coming months will be critical in determining whether the BSP can engineer a soft landing for its economy amid persistent inflationary pressures.

Related: Bangko Sentral · Governor