Philippines rate hike of 50 bps beats forecasts as inflation hits 7.2%
The Bangko Sentral ng Pilipinas surprised economists with a half-point increase, its fourth in a row, as inflation jumped and the peso hovered near a record low.
The Philippines rate hike on Thursday, Oct. 22, was bigger than anyone polled expected. The Bangko Sentral ng Pilipinas raised its target reverse repurchase rate by 50 basis points to 5.50%, its fourth consecutive increase. All 27 economists in a Reuters poll had forecast a quarter-point move, CNA reported.
What happened
Governor Eli Remolona said the board acted because it expects inflation to speed up further. "We took this decisive action because we forecast that inflation will accelerate further in the coming months due to oil prices, transport fares, and the potential effects of El Niño on food prices," he said, according to Rappler.
Annual inflation rose to 7.2% in September from 6.1% in August, far above the 2% to 4% target, on higher prices for rice, electricity, fuel and transport. Core inflation reached 4.7%, the highest in three years, suggesting that price pressure is spreading.
The BSP kept its 2026 average inflation forecast at 6.1% but raised its 2027 forecast to 6.0% from 5.4%, citing global oil prices and El Niño, CNA said. It expects inflation to return to target in 2028.
Why it matters
The currency is part of the story. The peso closed at a record low of 63.361 per dollar earlier in the week, Rappler said, and has fallen nearly 10% since the start of the U.S.-Israeli war on Iran, according to CNA. It strengthened to 63.311 right after the decision but later gave back the gains. Remolona said the BSP does not target the exchange rate and steps in only to smooth sharp swings.
The trade-off is growth. The economy expanded 2.3% in the second quarter, its slowest pace since 2021, and much of the price pressure comes from supply shocks that higher rates cannot fix directly. The Philippines rate hike is meant to stop those shocks from feeding into wages and expectations instead.
The BSP also raised its overnight deposit rate to 5.0% and its overnight lending rate to 6.0%, GMA News reported. Remolona told reporters that inflation could reach as high as 8% in 2027, and up to 9% for the poorest 30% of households, which helps explain the sense of urgency. Core inflation is projected to keep rising, the central bank said.
Other Asian central banks have also turned hawkish as oil climbs, as in our report on the RBI rate hike to 5.50% and India's oil dollar window for the rupee.
What's next
The board's last meeting of the year is on Dec. 17, and Remolona said it is ready to tighten again if needed. Economists are split: BPI's Emilio Neri Jr. expects another 25 basis points, Rappler reported, while OCBC's Lavanya Venkateswaran expects a pause after Thursday's large move, according to CNA.
Detailed coverage of the decision is available from Rappler. October inflation data will be the next signal of whether this Philippines rate hike was enough.
This article is for information only and is not investment advice.