BSP hikes policy rate by 25 basis points to 5% in August

MANILA, Philippines — The Bangko Sentral ng Pilipinas raised its benchmark interest rate by 25 basis points to 5%, tightening monetary policy for the third time this year as inflation remained well above target despite slower economic growth.

The Monetary Board also raised the rates on the BSP's overnight deposit and lending facilities to 4.5% and 5.5%, respectively.

Headline inflation eased to 6.2% in July from 6.4% in June, but the central bank said persistent price pressures warranted another increase.

The BSP expects average inflation to remain above the upper end of its 2% to 4% target range in 2026 and 2027. Core inflation also points to broadening price pressures, it said.

Volatile oil prices, severe El Niño conditions that could raise agricultural prices and potential wage adjustments pose further risks. Higher wages could feed into broader price-setting and produce second-round effects.

"These underlying price risks require preemptive monetary action," the Monetary Board said.

Inflation over growth

The latest increase adds pressure to an economy that grew slowly in the first half of the year. Higher interest rates can restrain borrowing and spending, but the BSP said the medium-term growth outlook remains intact.

"Despite slow growth in the first half of 2026, the fundamentals for growth appear to be intact over the medium term. With the support of fiscal measures, growth is expected to strengthen in the second half of the year," the BSP said.

The central bank expects inflation to ease toward its 3% midpoint target by 2028.

"Looking ahead, the Monetary Board is prepared to take monetary policy action as warranted to ensure that inflation returns to the 3.0-percent target, in keeping with its price stability mandate," it added.

The Philippine Statistics Authority attributed the slower July inflation rate to more moderate increases in transport, education services, and restaurants and accommodation services.