The Bangko Sentral ng Pilipinas (BSP) delivered another quarter-point interest rate on Thursday, extending its battle against inflation in hopes that the anemic economy could regain momentum later this year.
The Monetary Board, the top policymaking body of the central bank, raised the key rate guiding bank lending cost to 5 percent, the highest in over a year or since June 2025.
The decision brought the cumulative rate increases since the start of the BSP’s anti-inflation campaign in April to 75 basis points.
The outcome was correctly predicted by 11 out of 15 economists surveyed by the Inquirer last week.
After the BSP announced its decision, the Philippine peso weakened by 23.8 centavos to close at 61.888 against the US dollar yesterday.
This marked a new all-time low finish for the local currency, beating the prior record of 61.847 set on July 24.
The BSP’s decision was made against the backdrop of easing inflation pressures and weak economic growth.
Consumer price gains eased to 6.2 percent in July from a year earlier, extending a three-month deceleration as transport costs declined. Core inflation, which strips out volatile food and energy prices, also eased to 4.2 percent from 4.4 percent in June.
Even so, both the headline and core numbers were still above the BSP’s 3-percent target.
Meanwhile, the economy expanded just 2.6 percent in the first quarter, reflecting the effects of the conflict in the Middle East and adding to concerns that further interest rate increases could weigh on already weak demand.
Explaining its move, the BSP said that while inflation moderated, oil prices remain volatile. The central bank also flagged the possible impact of severe El Niño and potential wage increases.
Policymakers now expect inflation to average 6.1 percent this year-down from the prior estimate of 6.4 percent-though the 2027 outlook was raised to 5.4 percent from 4.5 percent before.
On the growth side, the BSP said the economy’s fundamentals ‘appear to be intact over the medium term’, adding that a recovery in government spending could help stimulate activity in the second half of the year.
Gov. Eli Remolona Jr. told a news conference that the Board considered all possibilities during its meeting, including keeping rates unchanged, though policymakers ultimately decided to deliver a ‘pre-emptive’ rate hike to guard against emerging inflation risks.
‘We’re hoping that we won’t need another rate hike,’ Remolona said, adding that the BSP is nevertheless prepared to ‘tighten as much as we need to bring the inflation rate down to its target.’
Peso hits new low
Inflation concerns caused the peso to hit an intraday low of 61.89 before slightly paring its losses. Trading volume eased to $1.8 billion from $1.9 billion in the prior session.
‘The peso reached new record lows after the BSP upwardly revised its inflation outlook for 2027 despite the announcement of a policy rate hike,’ a trader said.
‘The peso could remain on the edge ahead of potentially hawkish remarks from Fed (US Federal Reserve) Chair Warsh in the Jackson Hole Symposium. Intervention can be expected near the 62 level,’ the trader added.
While a lot will depend on events in the Middle East, Jason Tuvey, deputy chief emerging markets economist at Capital Economics, said Thursday’s action may be the end of the tightening cycle as the BSP may shift its attention to supporting the struggling economy.
‘All told, our central view is that the BSP will keep interest rates on hold for the remainder of this year before turning to rate cuts early next year,’ Tuvey said.
‘That said, a lot will hinge on developments in the Middle East. If traffic through the Strait of Hormuz remains constrained and oil prices drift higher, BSP officials may be inclined to deliver further rate hikes in order to contain inflation and prop up the peso,’ he added.