Middle East war may cut short BSP easing, say analysts

MANILA, Philippines — Tensions in the Middle East and the resulting surge in oil prices may force some Asian central banks like the Philippines to prematurely end their easing cycle, a development that would prompt greater reliance on fiscal policy to support economic growth.

On Monday, fuel retailers decided to stagger local pump prices following a big jump in world oil prices. This, as the globe braces for Iran’s response after the United States joined Israel in attacking the Islamic Republic and its key nuclear sites.

In a commentary on Monday, Deutsche Bank laid out the “most negative scenario”: world oil prices would soar above $120 per barrel if Iran decides to retaliate by closing the Strait of Hormuz, a strategic waterway where millions of barrels of oil flow every day.

Such a move could choke global oil supply and put pressure on Asian currencies, a development that would be damaging to net oil importers like the Philippines. Germany’s largest lender said this could prompt the Bangko Sentral ng Pilipinas (BSP) to cap its rate-cutting cycle sooner than expected.

READ: Iran says it attacked US forces at air base in Qatar

“[P]eso volatility in the lead-up to BSP’s next meeting could compel the Monetary Board to postpone what we think could be the last cut of this easing cycle,” Deutsche Bank said.

“In the most negative scenario, where an escalation of the conflict causes oil prices to rise above $120/bbl, we believe we could see Asia’s easing cycle end earlier than is expected,” it added.

BSP closely monitors Middle East

Last week, the powerful Monetary Board (MB) trimmed the policy rate, which banks use as a guide when pricing loans, by a quarter point to 5.25 percent. It was a widely expected decision that brought the cumulative reductions under the current easing cycle to 1.25 percentage points.

BSP Governor Eli Remolona Jr. said the central bank may cut once more in one of the last three meetings of the MB this year. He added the ongoing war in the Middle East and uncertainty over US trade policy “require closer monitoring.”

Nicholas Mapa, chief economist at Metrobank, said the future decisions of the BSP would depend on how long oil prices would stay high.

“Should oil prices remain elevated and translate to upward adjustments to the inflation outlook, we expect the BSP to either pause or shift to a more restrictive stance,” Mapa said.

READ: BSP delivers quarter-point cut; more to come

“Meanwhile, should recent developments have limited impact on the outlook we expect BSP to consider further easing to support economic growth,” he added.

Ruben Carlo Asuncion, chief economist at UnionBank of the Philippines, believes the central bank would have to take into account the new risks emanating from rallying energy prices.

“Higher global oil prices put pressure on inflation expectations moving forward. And an oil price shock will definitely push the BSP to revisit and reprice risks,” Asuncion said.

(2025/06/24-02:08)