Philippine central bank delivers larger-than-expected 50 bps hike to combat inflation

The Bangko Sentral ng Pilipinas (BSP) increased its benchmark interest rate by a larger-than-anticipated 50 basis points to 5.5 percent on Thursday, October 22. This marks the fourth consecutive rate hike and brings the 2027 inflation forecast to 6 percent from 5.4 percent. The BSP stated that the move was a "decisive" response to broadening price pressures and further upside risks to inflation.

The rate increase defied market expectations, with only a quarter-point increase expected by economists polled by Reuters. The Philippine peso gained following the central bank's hike but later retraced its gains due to concerns over sticky inflation and slowing growth. The peso has weakened nearly 10 percent since the beginning of the US-Israeli war on Iran, which led to a rally in oil prices.

Inflation accelerated in September, underscoring the challenge the BSP faces in keeping monetary policy tight despite weak economic growth. The BSP maintained its inflation forecast for this year at 6.1 percent and projected it to be 6.0 percent for next year, citing high global oil prices and the threat posed by El Nino. The BSP governor, Eli Remolona, indicated that there is room to adjust policy given expectations of an economic recovery supported by fiscal measures.