The Bangko Sentral ng Pilipinas (BSP) raised its benchmark interest rate for a second straight meeting as inflation pressures broadened, and coordinated a sharp policy shift to mitigate the risk of second-round effects.
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At its policy meeting yesterday, the target reverse repurchase rate was hiked by the monetary authorities by 25bp to 4.75 percent. The interest rates on the overnight deposit and lending facilities were also raised to 4.25 percent and 5.25 percent, respectively. The latest adjustment brought the cumulative rate increases of the agency to 50bp following a similar hike during the April to May period, marking a defensive pivot to cope up with sustained price shocks.
Inflation pressures prompt policy shift
During a press briefing, BSP Governor Eli Remolona Jr. noted that inflationary pressures remain strong due to developments in the Middle East. Global oil, fertilizer prices and domestic food costs continue to put heavy pressure on consumers.
If current supply shocks spread more quickly to other goods compared with the year two thousand twenty-two, and unless preemptive steps are being taken by the government to stabilize supply chains, the current economic landscape could result to unmoored inflation expectations. The central bank governor announced that average inflation would breach the two to four percent target band until next year.
May Inflation Data: Headline inflation eased to 6.8 percent from 7.2 percent.
Revised 2026 Forecast: Expected to average 6.4 percent, slightly higher than the previous 6.3 percent projection.
Long-term Outlook: The 2027 forecast was raised to 4.5 percent, while 2028 is expected to ease to 3.1 percent.
Despite the slight easing in headline inflation last month, underlying price pressures remain elevated based on various high-frequency informations gathered by the bank. BSP Deputy Governor Zeno Ronald Abenoja stated that the agency remains vigilant against broadening price pressures.
Growth concerns and future outlook
A gradual approach is preferred by the central bank, , e.g., , executing measured "baby steps" instead of massive hikes, because large moves could unsettle financial markets if they need to be reversed later.
The Monetary Board, serving as the highest policy-making body of the institution, have evaluated scenarios where no further hikes are needed, though an off-cycle meeting could still be held if something unexpected happens. The bank has ample room to maneuver, , i.e., , executing a larger 50bp adjustment if data warrants it. However, careful consideration is being given to the disappointingly slow economic growth seen in the last few quarters to lend support to the fiscal policy of President Ferdinand Marcos Jr.
Furthermore, officials noted that even if a ceasefire in the Middle East occurs today, it would take several months to rebuild the damaged infrastructures before global oil prices stabilize.
The agency announced that the board would next meet on August 27 to discuss policy.
