BSP ends easing cycle, hikes rates by 25 bps

MANILA, Philippines — Signaling a return to policy tightening, the Bangko Sentral ng Pilipinas (BSP) raised its benchmark interest rates by 25 basis points (bps) yesterday to curb mounting inflation pressures driven by higher oil and food prices.

At its third policy meeting this year, the Monetary Board lifted its key rate to 4.50 percent, effectively reversing the 25-basis-point cut delivered on Feb. 19. The move marks a shift from the easing cycle that began in August 2024.

It also adjusted the interest rates on the overnight deposit and lending facilities to four percent and five percent, respectively.

The central bank said the decision reflects a worsening inflation outlook amid global supply shocks, particularly from the ongoing conflict in the Middle East.

“The inflation outlook has deteriorated amid the ongoing conflict in the Middle East. Higher global oil and fertilizer prices have begun feeding through to domestic fuel and food prices,” the BSP said.

It added that underlying price pressures are also broadening, noting that “core inflation has continued to rise, pointing to a broadening of underlying price pressures.”

In a media briefing, BSP Governor Eli Remolona Jr. said headline inflation is now projected to breach the target range not only this year but also in 2027.

BSP Deputy Governor Zeno Abenoja said the BSP now expects inflation to average 6.3 percent in 2026 and 4.3 percent in 2027, both above the two to four percent target band.

Abenoja said the higher inflation path reflects the broadening of price pressures, with elevated global oil prices pushing up transport costs and higher fertilizer prices feeding into food prices. The latest forecasts also incorporate the recent spike in inflation, with March inflation accelerating to 4.1 percent.

Inflation expectations have also risen, heightening the risk that these could become unanchored. Given these risks, the Monetary Board said it deemed it necessary to act early.

“After considering its options, the Monetary Board deemed it necessary to take timely and preemptive policy action to safeguard price stability,” the BSP said, adding that the rate hike is intended “to anchor inflation expectations and contain the buildup of second-round effects.”

Remolona said the central bank opted for a calibrated 25-basis-point increase instead of a larger move, noting that while a 50-basis-point hike was considered under adverse scenarios, the BSP prefers a gradual approach.

“We usually want to keep it steady if the data can support it,” he said, adding that the easing cycle is “fairly safe to say… over.”

He signaled that further rate hikes remain on the table, with policy decisions to be taken in steps depending on incoming data.

“Once we start raising the policy rate, we’re likely to raise it again,” Remolona said, noting that a series of smaller moves is less disruptive than a single large adjustment.

Still, the BSP emphasized that it does not intend to tighten aggressively at the expense of growth.

“The idea is not to bring it back to within the target range right away… because if we try to do that, then it’s very costly for the economy,” Remolona said. “What we want is to bring it down… within a reasonable period without hurting the economy too much.”

On the growth outlook, the BSP expects the economy to expand by 4.3 percent in 2026, before accelerating closer to six percent in 2027.

The central bank said fiscal spending is expected to help support the recovery, even as higher inflation persists in the near term.

Jonathan Ravelas, senior adviser at Reyes Tacandong & Co. said the 25-basis-point-rate hike is the right calibrated and preemptive move as acting early helps anchor credibility.

“This is smart risk management — small, timely adjustments now to avoid much bigger and more painful hikes later, “ Ravelas said.

“For markets, it reinforces the BSP’s inflation-fighting resolve, supports the peso and signals policy consistency at a time when global shocks are clearly intensifying,”  Ravelas added.

Meanwhile, Capital Economics deputy chief emerging markets economist Jason Tuvey said as long as the war ends soon, the BSP may not opt for further tightening.

“If the war ends and traffic through the Strait of Hormuz normalizes soon, as we are currently assuming, concerns about the inflation outlook will probably dissipate and they would probably shift their attention back to bolstering economic growth,” Tuvey said.