Central banks in Southeast Asia are responding to rising inflation and currency pressures driven by higher crude oil prices and geopolitical tensions in the Middle East. The Bangko Sentral ng Pilipinas (BSP) raised its policy rate by 25 basis points to 4.50%, marking its first hike since October 2023 after an easing cycle that saw 225 basis points of cuts over the past 20 months. This decision was not unanimous, with Governor Eli Remolona noting that a 50 basis point hike was also considered, and signaling that further rate increases are likely. BSP now projects average headline inflation to breach its 4.0% tolerance ceiling in both 2026 and 2027. Despite the hawkish move, the Philippine Peso remains weak, with USD/PHP trading just below its March 30 record high of 63.8300, as higher oil prices continue to exert downward pressure on the currency [1].
In Indonesia, Bank Indonesia (BI) kept its benchmark BI Rate unchanged at 4.75% for the seventh consecutive meeting, as widely expected. However, BI adopted a more hawkish tone, expressing readiness to further strengthen monetary policy if needed to maintain Rupiah and price stability. Since the onset of the Iran war, the Indonesian Rupiah has declined by 2.5% against the US dollar, with USD/IDR remaining above the psychological 17,000 level. The currency faces additional headwinds from concerns over BI’s independence, the abrupt dismissal of former Finance Minister Sri Mulyani, and the risk of a downgrade to frontier market status by MSCI. BI is expected to rely on foreign exchange operations, spot and NDF intervention, and SRBI issuance, while maintaining a cautious approach to rate hikes amid ongoing uncertainties in the Middle East and inflation risks [2].
Both central banks are grappling with the challenge of supporting their currencies and containing inflation in the face of external shocks. While BSP has resumed tightening and signaled more hikes ahead, BI is prioritizing currency defense through non-rate measures but remains open to further tightening if necessary [1][2].
CONCLUSION
The BSP’s rate hike and hawkish guidance have so far failed to strengthen the Peso, as oil-driven inflation and geopolitical risks persist. Meanwhile, Bank Indonesia is signaling greater readiness to act but is relying on alternative tools to support the Rupiah. Both central banks face high market uncertainty, with further policy tightening possible if inflation and currency pressures continue.