MANILA: The Philippine central bank raised its benchmark interest rate for a third straight meeting, vowing to slow inflation that’s running twice as fast as target, even as the economy remains one of South-East Asia’s laggards.
The Bangko Sentral ng Pilipinas raised its target reverse repurchase rate by a quarter point to 5% on Thursday (Aug 27), as expected by 20 of 25 economists in a Bloomberg News survey. The rest expected a hold.
The decision came hours after Governor Eli Remolona told lawmakers that the central bank is ready to act to fulfill its inflation mandate, though it can’t influence the oil prices which have been driving up prices. The higher rate may provide some support for the peso, which has dropped almost 5% in 2026 and is the worst performer among emerging Asian currencies this month, increasing the cost of imported goods.
The country’s growth should improve in the second half of 2026, but there are upside risks to inflation due to the El Nino weather effect and wage hikes, the central bank said in a statement. Average inflation is expected to breach the BSP’s 4% tolerance ceiling this year and next, and then settle close to the 3% target by 2028, it noted.
The peso pared losses after the decision.
The BSP’s decision to hike its key rate stands out across South-East Asian peers, with counterparts in Indonesia and Thailand recently opting to stand pat. The Philippines has the region’s hottest inflation, owing to its reliance on imported oil and limited government subsidies on fuel.
Higher borrowing costs could however add to headwinds for the Philippine economy that expanded a slower-than-expected 2.3% in the second quarter, only beating Thailand among major Southeast Asian economies. Consumers and businesses have already been cautious about spending as higher energy costs drive up prices of transport, food and production.- Bloomberg
