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The Bangko Sentral ng Pilipinas increased its benchmark interest rate by 25 basis points during the past week, taking it to 4.50% in response to rising inflation linked to escalating fuel costs. The move came despite concerns over economic growth, with inflation projected at 6.3% for the year. Policymakers signalled that further rate hikes remain under consideration, marking a shift away from the earlier easing stance. The decision followed mixed market expectations and reflects growing risks to the fuel-import-dependent economy. External agencies, including S&P Global and Fitch Ratings, have also revised the country’s outlook amid geopolitical uncertainties affecting energy prices and macroeconomic stability.
The Bangko Sentral ng Pilipinas raised its key policy rate by 25 basis points to 4.50% during the past week, as policymakers prioritised inflation control amid rising fuel prices linked to geopolitical tensions. The decision, announced in Manila, followed an acceleration in inflation and mounting concerns over energy costs, even as the economy remains on a moderate growth trajectory. Advertisement
Governor Eli Remolona indicated that the rate increase reflected a consensus among policymakers, although it was not unanimous. He stated that further rate hikes remain a possibility, depending on incoming economic data, signalling that the central bank’s earlier easing cycle has effectively come to an end.
The move came against the backdrop of inflation rising to 4.1% in the previous month, up from 2.4% earlier, marking the fastest pace in nearly two years and breaching the central bank’s target range of 2% to 4%. The increase was largely driven by sharp gains in fuel prices, including double-digit rises in gasoline and diesel costs, which have intensified pressure on household budgets and business expenses.
The central bank now expects inflation to average 6.3% over the year, significantly above its target band. This outlook has prompted a shift in monetary policy stance, with authorities focusing on anchoring inflation expectations despite the risk of dampening economic activity. The Philippine economy is projected to grow by 4.4% over the same period.
Earlier in the past month, the central bank had convened an off-cycle policy meeting, becoming the first in Asia to take such a step amid rising global uncertainty. At that time, rates were left unchanged, with policymakers cautioning that tighter monetary conditions could delay economic recovery, while also signalling readiness to act if inflation risks escalated.
Market expectations ahead of the latest decision were divided, with a majority of economists anticipating no change, while a significant minority expected a rate hike. The outcome reflects a shift towards tighter policy in response to evolving inflation dynamics.
In parallel, the government has introduced fiscal measures to mitigate the impact of rising energy costs. President Ferdinand Marcos Jr suspended excise taxes on kerosene and liquefied petroleum gas, both widely used for household consumption, following the declaration of a national energy emergency in the past month.
Global rating agencies, including S&P Global and Fitch Ratings, have revised the country’s sovereign outlook, citing increased vulnerability to fuel price volatility given its dependence on energy imports.
Source - Reuters
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