Biggest in over 3 years
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) delivered its biggest interest rate hike in more than three years yesterday, as worsening inflation pressures prompted a more aggressive monetary policy response. At its fifth policy meeting this year, the Monetary Board raised its benchmark rate by 50 basis points to 5.50 percent. The larger-than-expected increase marked the BSP’s fourth consecutive rate hike this year and its first 50-basis-point adjustment since February 2023.
It brought cumulative tightening to 125 basis points since April, following three successive 25-basis-point increases, as monetary authorities moved to contain rising consumer prices despite sluggish economic growth.
The BSP also raised the interest rates on its overnight deposit and lending facilities to five percent and six percent, respectively.
The benchmark rate, formally known as the target reverse repurchase rate, guides borrowing costs across the financial system. Higher rates generally make loans more expensive, helping temper spending and investment to ease inflation over time.
BSP Governor Eli Remolona Jr. said the Monetary Board opted for a larger adjustment after inflation forecasts deteriorated more than anticipated, creating a sense of urgency to prevent price pressures from spreading further.
“There were surprising developments on prices. So there was a bit of a sense of urgency to try to dampen these inflationary pressures,” Remolona said during a press briefing.
Asked whether the central bank should have raised rates more aggressively in previous meetings, Remolona acknowledged that policymakers were somewhat behind the curve.
“Clearly, we wouldn’t be doing 50 basis points if we didn’t think we were kind of behind the curve,” he said. “But fortunately, we only need 50 basis points for now.”
The decision came as headline inflation accelerated to 7.2 percent in September from 6.1 percent in August, driven by higher food, fuel and transportation costs.
Core inflation, which excludes selected volatile food and energy items to measure underlying price pressures, likewise climbed to 4.7 percent from 4.1 percent.
The BSP now expects inflation to average six percent in 2027, higher than its previous forecast of 5.4 percent, as global oil prices, transportation fare increases and potential supply disruptions from El Niño continue to threaten price stability.
BSP Deputy Governor Zeno Ronald Abenoja said the central bank maintained its average inflation forecast for 2026 at 6.1 percent and its projection for 2028 at 3.3 percent. The forecasts already incorporate Thursday’s 50-basis-point rate increase.
Abenoja said inflation could accelerate further in the final quarter of this year and remain elevated in the early months of 2027 before gradually easing toward the BSP’s three-percent midpoint target in 2028.
Remolona also identified El Niño as the biggest inflation risk, warning that a stronger weather disturbance could significantly affect agricultural production and food prices.
Despite the larger adjustment, Remolona said the BSP could not yet determine whether its current policy stance was sufficiently restrictive to bring inflation back to target.
“I think it’s restrictive, but we don’t know for sure whether it’s restrictive enough,” he said.
The BSP chief also kept the door open for further tightening, including another large increase if additional inflation shocks emerge.
“We remain open to further interest rate hikes. I can’t say whether it will be 50 basis points or 25 basis points or bigger,” Remolona said.
He stressed, however, that the central bank was not raising interest rates to defend a particular peso level, although sharp currency depreciation remained a concern because of its potential impact on imported inflation.
The more aggressive tightening comes amid weak domestic economic activity, with the Philippines growing by just 2.3 percent in the second quarter.
Remolona said the BSP expects economic activity to recover by the first quarter of 2027, supported by higher government spending, improving investor sentiment and stronger investment.
Economists, meanwhile, were divided on whether Thursday’s larger increase marked the end of the tightening cycle.
BPI lead economist Jun Neri said the 50-basis-point adjustment was appropriate given persistent risks to the inflation outlook.
“With oil and food prices likely to remain elevated for the rest of the year, we expect at least another 25 bps hike in December,” Neri said.
In contrast, Capital Economics deputy chief emerging markets economist Jason Tuvey said the BSP was likely finished raising interest rates, provided energy prices stabilize and decline early next year.
“We think today’s decision marks the end of the tightening cycle,” Tuvey said in a report.
He noted that policymakers would probably shift their attention toward supporting the weak economy, which he expects to experience a slow and uneven recovery in the coming quarters.
However, Tuvey cautioned that persistently elevated energy prices and additional food inflation from El Niño could force the BSP to maintain higher interest rates for longer or deliver one or two additional increases.
The Monetary Board will next meet on Dec. 17 to discuss policy.