UOB economists Julia Goh and Loke Siew Ting report that Philippine headline inflation surged above the Bangko Sentral ng Pilipinas (BSP) target in March, primarily due to increased transport, electricity, and food costs, as well as a weaker Philippine Peso (PHP) [1]. In response to these developments and the ongoing disruptions from the Middle East conflict, UOB has raised its full-year 2026 inflation forecast to 5.5%, up from the previous estimate of 3.0%, while the BSP's own estimate stands at 5.1% for 2026 and 1.7% for 2025 [1]. The economists expect the BSP to maintain its policy rate at 4.25% during the upcoming 23 April meeting and through the first quarter of 2027, prioritizing domestic growth and employment over supply-driven inflation pressures [1].
At its off-cycle Monetary Board meeting on 26 March, the BSP acknowledged the limited effectiveness of monetary policy in addressing supply-side inflation, indicating a shift toward monitoring potential second-round effects, with core inflation guiding near-term policy decisions [1]. The government has implemented several non-monetary interventions to contain prices, including declaring a national energy emergency and rolling out mitigation measures in recent weeks [1]. Additional steps under consideration include a temporary suspension of fuel excise taxes, a review of airport-related charges, and diversification of oil supply sources [1].
The year-ago low base effects and continued weakness in the PHP are expected to further amplify inflationary pressures in the near term [1]. UOB's outlook suggests that while inflation risks remain elevated, the BSP is likely to maintain its current policy stance, focusing on sustaining economic recovery and job creation [1].
CONCLUSION
The sharp rise in Philippine inflation has prompted UOB to significantly increase its 2026 forecast, with supply-side pressures and currency weakness expected to persist. Despite these challenges, the BSP is anticipated to keep its policy rate unchanged, relying on government interventions to manage inflation. Market sentiment remains cautious, reflecting ongoing uncertainties and elevated inflation risks.