Bangko Sentral raises key rate to 4.75% as inflation overshoots gov’t target

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BSP. The Bangko Sentral ng Pilipinas headquarters in Quezon City on May 31, 2023.

Jire Carreon/Rappler

The Bangko Sentral ng Pilipinas forecast is that the average inflation rate will settle at around 6.4% in 2026

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) on Thursday, June 18, raised key interest rates to 4.75% as global oil and fertilizer prices remain elevated.

This is the second consecutive policy meeting that the monetary authority hiked policy rates as the economy continues to grapple with elevated food and fuel costs due to the Middle East crisis .

While inflation eased to 6.8% in May due to domestic fuel rollbacks, the latest figure remains well above the government’s target range of 2% to 4%.

Central banks use interest rates as a tool to control inflation. A higher interest rate aims to help cool down inflation by raising borrowing costs and temper spending.

BSP Governor Eli Remolona Jr. noted that monetary policy tightening is “warranted” as the central bank’s latest inflation projections rose.

Inflation is forecast to average at 6.4% in 2026 and 4.5% in 2027, before finally falling within target at 3.1% in 2028.

Even if the United States and Iran signed a peace deal , Remolona said the global market remains uncertain.

“Even if the Strait of Hormuz is open today, if there’s a ceasefire today, we will still need several months to rebuild the infrastructure before we can expect the price of oil to return to the levels before the conflict,” Remolona said.

The BSP in a separate statement also noted a rise in core inflation — the inflation rate excluding volatile items such as food and power.

“It will be a few more months until we see the spillover effects of the direct effect of the supply shocks. That will be reflected in the core inflation in succeeding months. So it is possible that we could be a little above the 4% range for the rest of this year,” said BSP Deputy Governor Zeno Abenoja.

Since inflation is expected to return to target in 2028, Remolona said that the monetary authority has “a lot” of room for further rate hikes. However, further action will depend on the second-round effects, or the higher commodity prices brought by elevated oil costs.

“I think 25 basis points is possible, 50 basis points is possible, depending on the data that we see going forward,” Remolona said. – Rappler.com

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