MANILA, Philippines — The Bangko Sentral ng Pilipinas may raise its policy interest rate to 6 percent if the war in the Middle East extends beyond May, according to HSBC, which warned of a “second wave” of inflation driven by higher food prices.
Consumer prices are seen to climb as high as 8.1 percent in the final quarter of 2026 if the conflict in the Middle East drags on, driven more by rising food costs than by energy as the country begins to feel the lagged effect of a global fertilizer shortage.
At a media roundtable, Aris Dacanay, a senior economist at HSBC Global Investment Research, said the adverse scenario could unfold if turmoil in the Gulf region persists beyond May.
In that case, average inflation this year could reach 6.3 percent before easing to 4.5 percent in 2027, he added.
Those forecasts suggest price growth would remain above the 2 percent to 4 percent target range of the Bangko Sentral ng Pilipinas (BSP), with Dacanay warning that higher fertilizer costs could fuel food inflation later this year if the fighting continues.
About a third of the world’s seaborne fertilizer trade passes through the Strait of Hormuz, a narrow shipping lane where traffic has been disrupted by the conflict.
“We are talking about a global shortage of fertilizer, which will affect the yields of food supply maybe perhaps in three or six months’ time,” Dacanay said. “It is the second wave of inflation that we need to anticipate.”
Hawkish cycle
Last week, the Monetary Board, the top policymaking body of the BSP, lifted the benchmark rate guiding bank lending costs by a quarter point to 4.5 percent. Ten out of 16 economists polled by the Inquirer foresaw this shift to hawkish policy.
Officials described the move as “preemptive,” citing a deteriorating inflation outlook as the conflict in the Middle East drags on. The central bank now expects inflation to average 6.3 percent this year and 4.3 percent in 2027, breaching its 2-percent to-4 percent target range.
The Philippines, which has declared a national energy emergency amid the turmoil, is grappling with supply-driven inflation—a challenge monetary policy cannot fully address and one that risks slowing a fragile economic recovery.
BSP Governor Eli Remolona Jr. said the latest increase in interest rates was meant to prevent spillover effects and keep inflation expectations in check.
Looking ahead, Dacanay said a prolonged conflict in the Middle East may prompt the central bank to raise the key rate to 6 percent.
