Oil at $106.5 could push Philippine rates up: BSP chief

The Bangko Sentral ng Pilipinas (BSP) may be compelled to raise interest rates now that global oil prices surged more than $100 per barrel, as higher energy costs could push inflation beyond the central bank’s target range.

BSP Governor Eli Remolona Jr. said escalating tensions in the Middle East have introduced new risks to the country’s inflation outlook, potentially forcing policymakers to respond.

“It’s possible that at $100 a barrel, we will begin to breach what we call our tolerance range (of inflation at four percent),” Remolona said in an interview with Bloomberg TV.

According to the BSP chief, the $100-per-barrel level represents a key threshold where higher oil prices could start feeding into the cost of other commodities, intensifying inflationary pressures.

If inflation rises beyond the central bank’s 2 to 4% target band, policy action could become necessary.

Remolona acknowledged that the central bank could face difficult policy choices should oil prices continue to climb.

“We might have to tighten,” he said, referring to the possibility of raising interest rates if crude prices surge and remain elevated.

Higher oil prices pose a particular challenge for the Philippines, a net oil importer.

Energy costs typically ripple through the economy by pushing up transport, electricity and food prices, even as the US dollar has strengthened by roughly 2%.

“In peso terms, the price of oil is 10 percent higher than before. Ten percent is still very manageable,” he said.

The BSP cut its policy rate in February to support economic growth, bringing total rate reductions to 225 basis points since August 2024. However, Remolona noted that the central bank now has limited room to provide further stimulus.

“There’s much less room now, so we’re hoping we don’t have to tighten in the face of higher inflation,” he said.

For now, the BSP expects to keep its current policy stance if the identified risks do not materialise.

“Our projections are to stay where we are. If the risks don’t materialise, then we’re in a place where we want to be,” Remolona said.

In a separate interview with CNBC, the BSP governor reiterated that policymakers could consider tightening monetary policy if oil prices climb sharply and remain elevated.

Despite the external risks, Remolona stressed that the Philippine financial system remains resilient.

“Our banking system remains very strong,” he said. “We have a lot of liquidity. We have very strong capital buffers.”