Philippines Central Bank Surprises With Big Rate Hike to Combat Inflation — Update

By Amanda Lee and Fabiana Negrin Ochoa

The Philippine central bank surprised markets with a bigger-than-expected interest rate hike as it seeks to keep inflation in check during one of the worst energy crisis in decades and looming weather-driven shocks.

Bangko Sentral ng Pilipinas raised its benchmark overnight reverse repurchase rate by 50 basis points to 5.50% from 5.00% and increased its overnight lending rate to 6.00% from 5.50%.

All 11 economists surveyed by The Wall Street Journal had expected a hike, but only one by the usual 25 basis points.

The decisive move will "appropriately tighten monetary conditions" to contain higher energy costs from spilling over to broader consumer prices and anchor inflation expectations, BSP Gov. Eli Remolona said Thursday.

Like many other countries that rely on the Middle East for oil, the Philippines has had to react quickly to the supply shock caused by the outbreak of war in late February. Before the conflict disrupted commodities markets, swelling costs for energy importers and weighing on emerging-market currencies, the BSP had been easing rates to buoy weakening growth.

With Thursday's decision, it has now delivered 125 basis points of tightening, putting it in the same camp as central banks in Australia, Indonesia and New Zealand, which have delivered several hikes so far this year. Others have moved more gradually but the longer the conflict drags on, the less room policymakers will have to maneuver.

In the Philippines, inflation accelerated again in September, matching April's pace at a more than three-year high, mainly due to costs associated with the oil shock. The central bank is also bracing for added pressure from the El Nino weather phenomenon, which usually lifts food prices as hot and dry conditions hurt crop production.

Remolona flagged El Nino as the inflation risk the BSP is most concerned about in the year ahead. While the BSP maintained its average inflation forecast for 2026 at 6.1%, it raised its projection for 2027 to 6% from 5.4%.

A struggling peso complicate matters by making imported goods, including fuel, more expensive in local-currency terms. The peso strengthened slightly after the central bank's outsized rate hike but remains 8% weaker against the dollar year to date.

Remolona said the BSP remains open to further rate hikes, though the size and timing remains dependent on how economic developments unfold.

Capital Economics thinks there is a chance that the BSP's latest rate hike could be the final one of its tightening cycle if energy prices stabilize and fall back from early next year.

That could pave the way for the focus to shift to supporting growth.

Excluding the pandemic, the Philippines' second-quarter gross domestic product growth was the slowest since late 2009, economist Jason Tuvey said in a note. Capital Economics expects a gradual and bumpy recovery over the coming quarters.

And if energy costs remain elevated into next year and El Nino stokes food inflation, however, the BSP is likely to keep rates high for longer than Capital Economics anticipates and could even hike again, Tuvey said.

Write to Amanda Lee at amanda.lee@wsj.com and Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com

(END) Dow Jones Newswires

October 22, 2026 06:27 ET (10:27 GMT)