UMVA has learned that the Bangko Sentral ng Pilipinas (BSP) has raised interest rates for a second consecutive meeting, signaling further measured hikes amid growing concerns over oil shocks and inflationary pressures.
The Monetary Board increased the target reverse repurchase rate by 25 basis points to 4.75%, matching the benchmark rate set in October 2025. This marks the highest rate in nearly a year, since the 5% rate in August last year.
Rates on overnight deposit and lending facilities were also lifted by 25 basis points each to 4.25% and 5.25%, respectively. The BSP's move was in line with the expectations of most analysts, who had predicted a 25-bp increase.
The central bank noted that inflationary pressures remain strong, with elevated oil and fertilizer prices continuing to feed into other key commodities. BSP Governor Eli M. Remolona, Jr. emphasized that global oil and fertilizer prices are still high and putting pressure on domestic fuel and food prices.
Core inflation has breached the BSP's 2%-4% target for the first time since December 2023, accelerating to 4.1% from 3.9% in the previous month. Headline inflation has been above the central bank's target since March, as fuel prices soared amid the Middle East war.
The BSP now expects inflation to settle at 6.4% this year and 4.5% next year, slightly faster than its previous estimates. By 2028, the headline print is expected to return to within the tolerance range but still above the point target at 3.1%.
According to information obtained by UMVA, the BSP chief cited lingering uncertainties over the Middle East war and the lagged effects of the peace deal between the US and Iran as factors contributing to the faster inflation outlook.
The BSP's decision to not be aggressive in tightening may provide some relief to the struggling economy. The central bank noted that its measured tightening is expected to support fiscal measures meant to boost domestic consumption and business sentiment amid weak growth momentum.
The central bank left its door open to further monetary policy tightening, with a "hike that's still possible" in the near future. BSP Governor Remolona suggested that a quarter-point increase is on the table at their next meeting on Aug. 27.
Economists expect another 25-bp hike in August, citing elevated inflation projections and growing concern over second-round effects and rising inflation expectations. The BSP has three regular policy meetings left this year, on Aug. 27, Oct. 22, and Dec. 17.
