THE Monetary Board decided to raise the key interest rate for the fourth time in a row this year-opting, however, for a larger-than-usual increment this time as it saw the urgency to contain recent ‘unforeseen’ developments on prices, with El Niño’s peak still to come.
At its monetary policy meeting on Thursday, the Monetary Board, the highest policy-making body of the Bangko Sentral ng Pilipinas (BSP) decided to raise the central bank’s Target Reverse Repurchase (RRP) Rate by 50 basis points to 5.50 percent.
The interest rates on the overnight deposit and lending facilities were adjusted to 5 percent and 6 percent, respectively.
‘Sense of urgency’
BSP Governor and MB Chairman Eli M. Remolona, Jr. explained that worse-than-expected numbers prompted the MB to raise the key interest rate by 50 basis points at its October 22 rate-setting meeting-an increment that is larger than the quarter-point hike per meeting delivered by the MB in its first three scheduled meetings for the year.
‘There was…because the numbers we were looking at, the forecasts, were worse than we thought. So there were surprising developments on prices. So there was a bit of a sense of urgency to try to dampen these inflationary pressures,’ Remolona said.
Explaining these ‘surprising developments’ further, Zeno Ronald R. Abenoja, the central bank’s Deputy Governor of the Monetary and Economics Sector, revealed: ‘We have observed some unforeseen events that occurred in the third quarter of this year.’
These events, he emphasized, ‘could be a manifestation of the beginning of the El Niño event.’ Abenoja added: ‘And the peak is still to come.’
‘So to some extent we have considered those,’ the BSP deputy governor said.
While a ‘confluence of factors’ were incorporated in the MB’s latest policy action, Remolona emphasized that ‘the biggest risk at the moment is El Niño.’
Abenoja explained that there are several dimensions where El Niño can impact domestic inflation.
‘The loss in…or weaker domestic production of palay, for example, or higher international prices or extreme weather events that affect production. Although there will be dry conditions, it’s possible that there could be stronger typhoons that could affect food prices,’ added the central bank deputy governor.
Elevated inflation in 2027
The central bank updated its inflation forecasts based on the actual developments in the market and in the economy, as well as new information that became available.
For 2026, the forecast is still 6.1 percent average inflation. For 2027, however, the forecast had been revised upwards to 6 percent, from the 5.4-percent inflation forecast pegged during the August 27 rate-setting meeting.
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By 2028, the central bank sees inflation returning to its target, as it expects inflation to settle at 3.3 percent.
Inflation could rise further in Q4
With the average inflation forecast for 2026 at 6.1 percent and the actual numbers for the first nine months of the year at about 5.4 percent, Abenoja said this means the inflation rate ‘could continue to increase in the last quarter of 2026.’
The central bank said inflation is seen to accelerate further in the coming months.
‘Average headline inflation is expected to remain high in 2027 and approach our 3.0-percent target in 2028. Core inflation is likewise projected to continue to rise, indicating underlying price pressures,’ the BSP said.
‘Renewed tensions in the Middle East have driven global oil prices higher. Upside risks to inflation have materialized with the recent increase in transportation fares. El Niño conditions also continue to pose a risk to agricultural production and prices,’ the central bank also noted in its statement.
The Monetary Board recognized the need for a ‘strong’ monetary policy response to broadening price pressures and further upside risks to inflation.
Such a ‘decisive response,’ it added, will make monetary policy ‘appropriately restrictive.’
‘This will contain second-round effects and firmly anchor inflation expectations,’ added the BSP.
The BSP said it stands ready to take further monetary policy action as necessary to ‘ensure the timely return of inflation to the target, in keeping with our price stability mandate.’
The MB has raised the key interest rate by a total of 125 basis points since the start of the conflict in the Middle East on February 28, delivering three separate quarter-point rate hikes at the Monetary Board’s rate-setting meetings held on April 23, June 18, and August 27; and a separate half-point rate hike on October 22.