The Bangko Sentral ng Pilipinas on Thursday delivered a preemptive 25-basis-point rate hike and left the door open to further tightening as stubborn inflationary pressures threaten to keep prices above the central bank’s target range.
The Monetary Board raised the Target Reverse Repurchase rate to 4.75 percent. Rates on the overnight deposit and lending facilities were likewise increased to 4.25 percent and 5.25 percent, respectively.
BSP Governor Eli Remolona said headline inflation has eased, but “core inflation remains above the tolerance range, reflecting second-round effects.”
He also flagged the potential impact of a severe El Niño and higher minimum wages as additional inflation risks.
“These underlying pressures require preemptive monetary action,” Remolona said.
The BSP now sees inflation averaging 6.1 percent in 2026, although this is an improvement from its 6.4-percent forecast in June. The projection remains well above the central bank’s 2 percent to 4 percent target range.
For 2027, the BSP raised its inflation forecast to 5.4 percent from 4.5 percent, citing the expected effects of El Niño and higher minimum wages. Inflation is projected to ease to 3.3 percent in 2028, bringing it closer to the 3 percent target.
The projections explain why the BSP chose to act before price pressures become more deeply embedded in household and business decisions.
Global oil and fertilizer prices remain elevated, feeding into domestic fuel and food costs, while rising core inflation suggests that pressures are spreading beyond volatile commodities.
The trade-off is higher borrowing costs for consumers and businesses, potentially weighing on credit demand, investment, and expansion. But the BSP appears willing to accept some restraint now rather than allow inflation expectations to become harder to tame.
Remolona said the Monetary Board remains prepared to take further policy action as needed under its price stability mandate.
“The BSP will ensure that inflation returns to the 3 percent target,” he said.
For now, however, that return looks more like a 2028 destination than a 2026 or 2027 arrival, leaving the BSP little room for complacency and financial markets watching closely for its next move.
