MONETARY authorities yesterday raised key policy rates by half a percentage point, stressing that more rate hikes are likely amid expectations of a higher inflation in the coming months.
The Bangko Sentral ng Pilipinas’ (BSP) benchmark rate now stands at 5.5 percent while those for its overnight deposit and lending facilities are at 5.0 percent and 6.0 percent, respectively.
“We took this decisive action because we forecast that inflation will accelerate further in the coming months due to higher oil prices, transport fares, and the potential effects of El Nino on food prices,” BSP Governor Eli Remolona Jr. said in a press briefing after the announcement.
This marked the first time the central bank delivered a half-a-percentage point rate hike since February 2023, when it was also trying to rein in inflation after it surged to 8.7 percent in January of that year.
It is also the fourth straight meeting that the central bank raised its key policy rate. Total hikes have reached 1.25 percent so far this year.
“The numbers we were looking at, the forecasts, were worse than we thought,” Remolona said.
“So there was a bit of a sense of urgency to try to dampen these inflationary pressures,” he added.
Remolona said inflation is expected to remain elevated through next year, with inflation returning to the target range only by 2028.
“Core inflation, which includes volatile energy and food prices, is likewise projected to continue to rise, indicating the spread of price pressures,” Remolona said.
The central bank retained its inflation forecast this year to 6.1 percent this but raised next year’s projection to 6.0 percent from the previous 5.4 percent.
Forecast for 2028 was also retained at 3.3 percent.
“There could still be some increase in inflation numbers for the coming months, as well as going into the early months of 2027,” BSP Deputy Governor Zeno Abenoja added.
More rate hike
“We remain open to further interest rate hikes (to contain inflation),” Remolona said.
“I can't say whether it will be 50 [bps] or 25 [bps] or bigger. You might remember that in 2022 we did 75 [bps] and then 50 [bps] and 50 [bps] and I hope we don't need to do that,” he added.
Pantheon Macroeconomics economist Miguel Chanco said that another rate increase in December “isn’t a done deal.”
The policymaking Monetary Board will meet for the last time this year on Dec. 17.
“Our base case is that the Board will eventually find itself in a position to start unwinding this year's hikes by the middle of 2027, especially if we're right about GDP growth remaining below par for the foreseeable future,” Chanco said.
Capital Economics chief emerging market economist Jason Tuvey also said that policymakers will likely start to shift their attention to support growth.
“We expect the recovery to be slow and bumpy over the coming quarters,” Tuvey said.
“That said, if energy prices remain elevated into next year and El Niño adds further upward pressure to food inflation, the BSP is likely to keep rates high for longer,” he added, noting that one or two more hikes could be possible.
Rizal Commercial Banking Corp. chief economist Michael Ricafort said “policy rate tends to go (upward) in an effort to bring down inflation back to the target.”
“For the coming months, the BSP could match future Fed rate hike/s to maintain healthy interest rate differentials and to also help stabilize the peso exchange rate, as part of fulfilling its mandate of price stability that would be conducive for long-term economic growth and development that is more inclusive,” Ricafort said.
