Key facts
- The Bangko Sentral ng Pilipinas (BSP) raised its benchmark interest rate by 25 basis points to 4.75% on June 18.
- This is the second consecutive meeting the BSP has hiked rates.
- Inflation in the Philippines averaged 5% for the first seven months of the year, above the central bank's 2%-4% target.
- A 7.2% year-on-year inflation spike was recorded in April.
- The BSP projects inflation to exceed its 4% tolerance ceiling in 2026 and 2027.
The Bangko Sentral ng Pilipinas (BSP) has raised its benchmark interest rate by 25 basis points to 4.75%, marking its second consecutive meeting with a rate hike. This move aims to temper inflation, which has averaged 5% for the first seven months of the year, significantly above the central bank's 2% to 4% target range. The decision comes despite concerns about weak economic growth and the potential for stagflation.
The Philippines' inflation spike, reaching 7.2% year-on-year in April, is seen as a warning sign for developing Asia, particularly economies heavily reliant on imported energy. The conflict in the Middle East and the closure of the Strait of Hormuz have exacerbated these vulnerabilities, leading to soaring oil and transportation costs. Economists note that widespread price increases across food, transportation, and utilities indicate broadening inflationary pressures.
While the BSP projects inflation to remain above its target in 2026 and 2027, some economists believe the supply-side shock will eventually subside. However, pressure is mounting on the BSP to anchor inflation expectations and prevent second-round effects. The Philippine peso has shown some recovery but remains down for the year. Other Asian central banks, including the Bank of Japan and Bank Indonesia, are also tightening policy, while the US Federal Reserve has held rates steady.