Remolona: BSP has room to tighten

By Katherine K. Chan, Reporter

WASHINGTON, D.C. — The Bangko Sentral ng Pilipinas (BSP) said it has room to raise policy rates as the National Government’s planned catch-up spending is expected to cushion the economy from a sharper slowdown amid the energy crisis.

In an exclusive interview with BusinessWorld, BSP Governor Eli M. Remolona, Jr. said the country will see a wider negative output gap as inflation and economic growth face mounting pressures from the Middle East conflict and the lingering effects of last year’s flood control corruption scandal.

Still, he noted that the central bank will avoid any excessive tightening.

“We don’t want to tighten by too much,” Mr. Remolona said on the sidelines of the International Monetary Fund (IMF) and World Bank’s 2026 Spring Meetings here on Tuesday.

“But there’s room to tighten, especially because the concern about growth is not as big as before, given what we think will happen on the fiscal side,” he added.   

Last month, the BSP held policy rates steady in an off-cycle meeting as it sought to calm markets amid growing uncertainties, and cautioned that tightening immediately risks delaying economic recovery.

The latest off-cycle move marked the BSP’s first hold since June 2024, pausing its nearly two-year easing cycle where it slashed the policy rate by a total of 225 basis points. It last hiked its rates in an off-cycle announcement in October 2023.

The Philippine economy slumped last year as a corruption scandal involving flood control projects dampened investments, public spending and household consumption.

Philippine gross domestic product grew by 4.4% in 2025, the worst seen since the COVID-19 pandemic.

Mr. Remolona said faster and better government spending in the second half could help ease growth woes, allowing the central bank to focus on maintaining price stability.

“The output gap will be more negative, slightly more negative than before. But we also know that government spending will pick up in the second part of the year. And not only will it pick up, it will be better quality government spending,” he said.

“So that will help growth, which makes our job a little bit easier. Then we can worry more about the inflation side, especially with the second-round effects beginning to materialize,” he added.

Second-round price effects may also emerge sooner than expected after headline inflation breached the central bank’s target range a month ahead of their forecast, Mr. Remolona noted.

“Now we’re thinking maybe the spillover effects, and as you know we focus on spillover effects, may be happening… slightly sooner than we thought,” he said.   

In March, elevated oil prices amid the Middle East conflict drove inflation to a near two-year high of 4.1%, faster than the BSP’s 3.1%-3.9% forecast and 2%-4% target for the year.

The central bank had expected inflation to move past its target by April, though Mr. Remolona said the forecast miss was “not entirely unexpected.”

“The oil price shock itself is a global shock, and there’s very little we can do about that shock. But we worry about the spillover effects of that shock,” he said. “It would spill over into the price of transportation, the price of fertilizer, and then food prices.”

Mr. Remolona earlier said that the Monetary Board’s future policy decisions will center on tempering second-order effects.

Meanwhile, the central bank governor noted that inflation expectations remain anchored so far, adding that they intend to expand their monitoring of consumer and business expectations.

“(Inflation expectations are) so far so good. So far, they look anchored,” Mr. Remolona said. “We’re probably going to do more surveys of expectations and not just look at the next two years but maybe look at five years down the road.”

WAIT AND SEE
For now, the BSP chief said they are still assessing how long they will stick to a wait-and-see approach as they weigh more data, with core inflation and prices for the bottom 30% of households among their main focus for the April 23 policy review.

“We’re looking at the data as they come… There’s still data coming that will help us make a decision on the 23^rd,” Mr. Remolona said.

“We’re not looking at just the headline inflation. We’re focusing a bit more on core inflation, which chips out the more volatile elements in prices. And then we’re also focusing on this inflation based on the consumer basket of the lowest 30% of households,” he added.

At the same time, the Intergovernmental Group of Twenty-Four (G-24), which the Philippines is a part of, noted that developing countries’ central banks now assume a “critical balancing role” as energy shocks heighten stagflation risks.

“The central banks have a balancing act,” Olawale Edun, G-24 chairman and Nigerian Finance minister, said at a press briefing on Tuesday. “They have a really important role to play in calibrating and helping to steer the economy safely through this current energy crisis and geopolitical tensions.”

However, Akhtar Javed, G-24 first vice-chairman and executive director of the State Bank of Pakistan, said growing pressures from the energy crisis are making it “really difficult” for monetary authorities to strike a balance between taming inflation and boosting growth. 

“(T)his is a challenging time for the central bank, and especially the G-24 countries, which were already facing some pressures because of the tariffs and other related things. But this regional conflict has also put further pressures, and it’s really difficult for the central banks to strike a balance,” Mr. Javed said. 

G-24 Secretary Iyabo Masha said central banks should continue to stand pat as monetary policy tightening will have limited effects on supply-driven shocks. 

“What we’re seeing is that it’s mainly supply-side constraints on oil production, and supply-side constraints do not respond well to monetary policy like interest rate hikes,” she said.

“So, I will say that unless central banks see that some of these inflationary pressures are going into wages (and) are showing up in real growth, they should, at least on balance, wait and see and see how things evolve. But of course, everything has to be in a data-dependent manner,” she added.