The Bangko Sentral ng Pilipinas (BSP) raised its benchmark interest rate by 50 basis points to 5.50 percent on Thursday, its biggest hike in more than three years, as inflation surged and price pressures spread across the economy.
The increase, the fourth in a row this year, was the largest since February 2023 and brought total rate hikes in 2026 to 125 basis points.
The Monetary Board also raised the overnight deposit and lending rates to 5.00 percent and 6.00 percent, respectively.
The decision followed a jump in inflation to 7.2 percent in September from 6.1 percent in August, with the BSP expecting consumer prices to rise further in the coming months.
“Inflation is seen to accelerate further in the coming months. Average headline inflation is expected to remain high in 2027 and approach our three-percent target in 2028,” the BSP said.
The central bank cited rising global oil prices amid renewed tensions in the Middle East, higher transport fares and risks to agricultural production from El Niño.
Core inflation, which excludes volatile food and energy prices, is also expected to climb, suggesting that price increases are becoming more widespread.
“The Monetary Board recognized the need for a strong monetary policy response to broadening price pressures and further upside risks to inflation,” the BSP said.
It said the larger rate hike would help prevent higher prices from driving further wage demands and price increases.
The decision comes at a difficult time for the Philippine economy, which grew just 2.3 percent in the second quarter.
Higher interest rates could further dampen consumer spending and business investment, although the BSP expects economic activity to recover with support from government fiscal measures.
The BSP said it was prepared to raise rates further if needed to bring inflation back to its three-percent target.
