A half-point increase to 5.50%
On Thursday, October 22, the Bangko Sentral ng Pilipinas Monetary Board announced a 50-basis-point increase in its benchmark rate, taking it to 5.50%, per a released statement. The target reverse repurchase rate is now set at that figure. This is the central bank's first half-point rise since February 2023, and it lifts the cumulative tightening to 125 basis points since the cycle started in April.[S1][S2]
The move also reset the rates on the central bank's overnight deposit and lending facilities, which now sit at 5.00% and 6.00% respectively. The Monetary Board framed the decision as a response to inflation risks rather than to currency concerns, with Governor Eli Remolona indicating that defending the peso was not the motive behind the hike.[S1][S2]
Inflation seen staying high until 2027
Average headline inflation is projected to speed up over the coming months and to remain elevated through 2027, only gradually approaching the central bank's 3% target in 2028. Core inflation is also expected to keep rising, which the Board reads as a sign that cost pressures are spreading more broadly through the economy rather than staying confined to a few items.[S1]
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According to the Monetary Board, several factors are driving the pressure: high world oil prices tied to Middle East tensions, increased transport fares, and continuing El Niño threats to farming. The Board noted that fiscal steps ought to aid the domestic recovery, yet maintained that a firm, restrictive monetary policy was necessary to contain second-round effects and keep inflation expectations anchored.[S1]
Central bank leaves door open to more action
The central bank said the increase would help contain second-round effects and firmly anchor inflation expectations. It also said it stands ready to take further monetary policy action if needed so that inflation returns to target on time, in line with its price stability mandate.[S1]
