Philippine headline inflation moved above the Bangko Sentral ng Pilipinas (BSP) target in March, linked to higher transport, electricity and food costs, as well as a weaker Philippine Peso (PHP). UOB lifted its full-year 2026 inflation forecast to 5.5% from 3.0%, compared with the BSP estimate of 5.1%, while 2025 is listed at 1.7%.

The BSP held an off-cycle Monetary Board meeting on 26 March and noted that monetary policy has limited impact on supply-side inflation. It said it will monitor possible second-round effects, with core inflation used to guide near-term policy.

UOB expects the BSP to keep the policy rate unchanged at 4.25% at the 23 April meeting. It also projects the rate to remain at 4.25% through 1Q27.

UOB linked the higher 2026 forecast to the March inflation rise and disruptions related to the Middle East conflict. It also cited year-ago base effects and continued PHP weakness as factors that could add to price pressures.

The national government is using non-monetary steps aimed at essential food items, electricity, and public transport. Measures include a declared national energy emergency, possible temporary suspension of fuel excise taxes, a review of airport-related charges, and diversifying oil supply sources.

Given that headline inflation jumped in March, we are raising our 2026 inflation forecast to 5.5%. However, we see the Bangko Sentral ng Pilipinas (BSP) prioritizing growth and holding its policy rate at 4.25% in its upcoming April 23 meeting. This growing gap between high inflation and a steady policy rate creates negative real yields, which should pressure the currency.

The Philippine Peso (PHP) is likely to weaken further in the coming weeks. We saw the currency struggle throughout 2025, weakening past 60 to the US dollar for the first time in over a year, and the current economic data provides little reason for a reversal. Traders should consider positions that benefit from this expected decline, such as using options or non-deliverable forwards to short the PHP against the dollar.

With the BSP signaling it will look through this supply-side inflation, a key trade involves betting on interest rate expectations. While the central bank intends to stay on hold, the market may begin pricing in the risk of future hikes if inflation continues to surprise on the upside. This tension can be traded using interest rate swaps, positioning for the forward curve to steepen as long-term rate expectations rise.

The combination of rising costs and a weaker peso will likely squeeze corporate profit margins, creating a difficult environment for local stocks. Historically, the Philippine Stock Exchange Index (PSEi) has underperformed during periods of sharply rising inflation, as was seen during the commodity price shocks of late 2025. Therefore, traders could look at buying put options on the index as a hedge or a direct bet on a market downturn.

Uncertainty surrounding the Middle East conflict and the effectiveness of government price controls will increase market swings. As of April 2026, oil prices have already climbed over 15% since the start of the year, directly impacting local costs. This environment is ideal for volatility-based strategies, where traders can use options like straddles to profit from large price movements in either direction without needing to predict the exact outcome.