BSP hikes rates anew on inflation pressure

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June 19, 2026 | 12:00am

25 bp increase brings key rate to 4.75%

MANILA, Philippines —  The Bangko Sentral ng Pilipinas (BSP) raised its benchmark interest rate for a second straight meeting as inflation pressures broadened, but signaled that future moves would likely remain measured unless second-round effects worsen.

At its policy meeting yesterday, the Monetary Board hiked the target reverse repurchase rate by 25 basis points 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 move brought the BSP’s cumulative rate increases to 50 basis points following the 25-basis-point hike in April, marking a sharp policy shift after a previous easing cycle.

“Given recent developments in the Middle East, inflationary pressures remain strong,” BSP Governor Eli Remolona Jr. said in a press briefing. “Global oil and fertilizer prices are still elevated and continue to put pressure on domestic fuel and food prices.”

Headline inflation eased to 6.8 percent in May from 7.2 percent in April, but the BSP chief said this was only one data point as underlying price pressures remained elevated.

The central bank also raised its inflation forecast, with average inflation now seen breaching the two to four percent target band until next year.

BSP Deputy Governor Zeno Ronald Abenoja said the central bank now expects inflation to average 6.4 percent this year, slightly higher than the 6.3 percent forecast in the previous policy meeting. The 2027 forecast was also raised to 4.5 percent from 4.3 percent.

For 2028, the BSP expects inflation to ease to around 3.1 percent, slightly above the midpoint of the two to four percent target range.

“This policy action will help keep inflation expectations anchored and will mitigate the risk of second round effects,” Remolona said. “This policy move is one that is carefully measured in order to lend some support to fiscal policy in stimulating consumption and investment.”

Asked why the Monetary Board raised rates by only 25 basis points instead of a bigger 50-basis-point move, Remolona said a larger move remains possible, but the BSP prefers a gradual approach for now given uncertainty around the inflation outlook.

“Given the uncertainty, we might want a bigger hike because we want to prevent de-anchoring of inflation. But if that’s not a big issue, and for now it’s not a big issue, then we could go with baby steps, so that if something unexpected happens, we can always adjust,” he said.

Remolona said the Monetary Board could still have an off-cycle meeting or do 50 basis points if necessary. But large moves could unsettle markets if they need to be reversed later.

“The problem with big moves is it tends to disturb the markets if you reverse them, so it’s better to do small moves in the same direction,” he said.

The BSP chief said a rate increase at the next meeting remains possible, although he also noted that the central bank considered scenarios where no further hikes would be needed.

The Monetary Board will next meet on Aug. 27 to discuss policy.

Asked how much room the BSP still has to tighten, Remolona said: “We have a lot. I think 25 basis points is possible, 50 basis points is possible, depending on the data that we see going forward.”

He said the key trigger for a stronger move would be the size and speed of second-round effects.

Remolona said price pressures from the current supply shock are spreading more quickly to other goods and services compared with 2022. This, he said, increases the risk that inflation expectations could become less firmly anchored.

The BSP is also monitoring high-frequency data to determine whether the current policy stance remains appropriate, especially as global oil markets remain uncertain despite an interim US-Iran ceasefire.

“Even if the Strait of Hormuz is open today, if there’s a ceasefire today, we will still need several months to rebuild the infrastructure before we can expect the price of oil to return to the levels before the conflict,” he said.

Despite the tightening move, Remolona said the BSP considered the impact of higher borrowing costs on economic activity.

“Growth has been disappointingly slow in the last few quarters, so we think that by not being too aggressive, it can maybe help the economy a little bit,” he said.