Philippine central bank raises key rate amid inflation pressure

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Philippine central bank raises rate

Highlights

Bangko Sentral ng Pilipinas raised its reverse repurchase rate by 50 basis points to 5.5%, exceeding analysts' expectations with a stronger policy tightening.
September inflation matched this year's peak at 7.2%, with year-to-date inflation at 5.4%, staying above BSP's 3% target for seven consecutive months.
GDP growth slowed to 2.3% in Q2 and 2.6% for the first half, highlighting the BSP's prioritization of inflation control over economic growth amid persistent price shocks.

Policy move lifts benchmark to 5.5%

As reported by BusinessWorld Online, the Bangko Sentral ng Pilipinas raised its target reverse repurchase rate by 50 basis points to 5.5%, while also increasing the overnight deposit and lending rates to 5% and 6%, respectively.

The Monetary Board says a strong monetary policy response is needed as price pressures broaden and upside risks to inflation persist. In its statement on Thursday, the central bank says the more restrictive stance is intended to contain second-round effects and keep inflation expectations anchored.

The decision marks the first 50-basis-point increase in nearly four years and the fourth consecutive meeting in which the BSP tightens policy. The latest move brings total rate increases since April to 125 basis points and exceeds the expectations of most analysts surveyed, with 20 of 22 having projected only a quarter-point hike.

Inflation risks and growth backdrop

Inflation returns to 7.2% in September, matching this year's peak and remaining well above the BSP's 3% target for a seventh straight month. Year-to-date headline inflation stands at 5.4%, while core inflation, which excludes volatile food and fuel items, accelerates to a nearly three-year high of 4.7%.

The central bank's action comes as persistent price shocks in oil, food, housing, and utilities continue to weigh on the outlook, with the looming El Niño also adding to supply-side concerns. At the same time, policymakers are balancing those inflation risks against an economy that contracts in momentum, with gross domestic product growth slowing to 2.3% in the April-to-June period and first-half expansion reaching 2.6%.

The National Government is targeting full-year GDP growth of 3.5% to 4.5%, and the BSP expects fiscal measures to support the recovery. The rate increase signals that inflation control remains the immediate priority even as the broader economy seeks firmer growth.

In our earlier article, we covered the Philippines’ planned reforms to peso-denominated government bond pricing ahead of a targeted inclusion in J.P. Morgan’s Government Bond Index-Emerging Markets in 2027. We noted that while these changes can improve liquidity and broaden foreign participation, the payoff for business investment and productivity still depends on factors like global rates, fiscal credibility, and deeper domestic capital-market development.

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