PHP: Potential energy shocks and BSP’s position – DBS

Impact of National Energy Emergency on the Philippine Economy

Radhika Rao, an economist at DBS Group Research, examines the potential consequences of the Philippines' recent declaration of a national energy emergency, prompted by supply uncertainties in the Middle East. She highlights mounting challenges in domestic financial markets, the Peso's historic weakness, and the lagging performance of equities. Rao anticipates that the Bangko Sentral ng Pilipinas (BSP) will likely hold off on any interest rate reductions, removing a previously expected rate cut from DBS’s main forecast.

Energy Crisis Adds Pressure to Peso and Economic Outlook

Even prior to the escalation of tensions in the Middle East, official projections for economic growth had already been revised downward—to 4.6% for 2026 and 5.9% for 2027, compared to earlier estimates of 5.4% and 6.3%. This adjustment was attributed to ongoing corruption probes and slower government spending, which weighed on the economic outlook despite a cumulative 225 basis points reduction in key interest rates.

On Wednesday, the Philippine government announced a national energy emergency to address the risks stemming from the Middle East conflict and potential supply disruptions.

Financial markets within the country have already experienced significant strain this month. The Peso has fallen to an all-time low, and local equities have underperformed compared to other markets in the region.

Given these circumstances, the BSP is expected to exercise caution and maintain its current policy stance, opting for a prolonged pause rather than further rate cuts.

As a result, DBS has eliminated the final rate cut from its baseline projections.

(This report was produced with assistance from an AI tool and subsequently reviewed by an editor.)