Philippines Central Bank Raised Rates by 25 basis points to 6.25%, Highest Since May 2007

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP), Philippines central bank hiked by 25 basis points to 6.25%. Rates are now the highest since the 7.50 percent logged in May 2007. Since it started raising interest rates in May last year, the BSP has so far increased key policy rates by 425 basis points (bps), making it the most aggressive central bank in the region. BSP joined the Federal Reserve and the Hong Kong’s monetary authority in raising its base rate to combat inflation. Later the same day, Taiwan’s central bank announced a 12.5-basis-point increase to 1.875%,

Illustration: David Simonds/Observer


Headline inflation eased slightly to 8.6 percent in February from a 14-year high of 8.7 percent in January, but core inflation accelerated further to 7.8 percent from 7.4 percent. Medalla explained that further monetary policy action was deemed necessary to address broadening price impulses emanating from robust domestic demand and lingering supply-side constraints.

Taking into consideration the inflation outturn last month, BSP Deputy Governor Francisco Dakila Jr. said the Monetary Board lowered its inflation forecasts to six percent from 6.1 percent for this year and to 2.9 percent from 3.1 percent for 2024.

Medalla is optimistic that inflation will likely go back to within the two to four percent target of the BSP by November or December this year, “the inflation forecasts reflect the cumulative impact of the BSP’s policy rate adjustments and the slower growth outlook on both the domestic and external fronts.”

Inflation is forecast above the central bank’s target range of 2% to 4%.

Moreover, the BSP chief pointed out that inflation expectations have increased slightly for this year, while those for 2024 and 2025 remain near the upper end of the target band.

“The effect of supply shortages on domestic food prices remains a concern, while the potential impact of higher transport fares, increasing electricity rates, as well as above-average wage adjustments in 2023 point to the broader-based nature of price pressures,” he said.

Bank of the Philippine Islands lead economist Jun Neri said supply remains the major source of inflation.

With core and headline inflation still much higher than policy rates, Neri said the hike could manage the risk of further de-anchoring of expectations and sustained second round effects.

Global Growth

Dakila said monetary authorities also took into consideration the more challenging global growth outlook, as well as the cumulative impact of BSP’s previous policy rate adjustments.

On the downside, Medalla said the impact of a weaker-than-expected global economic recovery continues to be the primary factor that could dampen inflation.

“Given these considerations, the Monetary Board decided that follow-through monetary action would help ease persistent price pressures from here and abroad, as well as further realign inflation expectations with the target band over the policy horizon,” he said.

With the smaller rate hike, a pause from the tightening cycle is not being discounted.

“In the past, we were more or less sure that the next policy meeting would be an increase. Now, it clearly depends on the data. In the absence of new shocks, we think we are already moving in the right direction,” he said.

Moving forward, he reassured the public that monetary authorities remain ready to respond further to inflation risks in line with the BSP’s data-dependent approach to ensuring price and financial stability.


THE peso gained against the dollar on Thursday. The currency strengthened by 23 centavos to close at the day’s low of P54.27:$1. The peso opened at P54.38:$1 and traded as high as P54.595. Volume reached $1.135 trillion, lower than the $1.4 trillion in the previous session.

Deputy Gov. Dakila has signaled in the past that the central bank could intervene to support the peso,

“The [central bank] stands ready to participate in the foreign exchange market only to ensure orderly market conditions and to reduce excessive short-term volatility in the exchange rate,” he has said.

Dakila in a previous interview said the potential impact of higher global oil prices, petitions for further transport fare hikes, weather disturbances affecting food prices, and a sharp increase in the price of sugar all remain. He said the latest rate hike should “help alleviate some pressures” on the peso, even though the increase is smaller than the U.S. Fed’s latest adjustment.

Source: TC

From The TradersCommunity Research Desk