BSP delivers 50 bps jumbo rate hike

The Bangko Sentral ng Pilipinas raised its benchmark policy rate by 50 basis points to 5.50%, implementing its largest interest rate hike in more than three years. The move, decided by the Monetary Board on Thursday, marked the fourth consecutive policy meeting with a rate increase and brought total monetary tightening since April to 125 basis points.

The target reverse repurchase rate now stands at its highest level in nearly two years, matching the benchmark set in April 2025. Only a small minority of analysts had expected a half-point adjustment, as most anticipated a smaller move.

Alongside the main policy rate, the BSP increased rates on its overnight deposit and lending facilities by 50 basis points each, to 5% and 6%, respectively. These adjustments are intended to tighten monetary conditions more broadly across the financial system.

The benchmark rate, formally known as the target reverse repurchase rate, guides borrowing costs economy-wide. Higher policy rates generally make loans more expensive, which can curb spending and investment and help bring inflation down over time.

The decision followed a renewed acceleration in consumer prices, with headline inflation rising to 7.2% in September from 6.1% in August. This rate was well above the BSP’s 2% to 4% target range and represented a return to this year’s peak amid renewed surges in oil, food, housing and utilities costs.

Core inflation, which excludes selected volatile food and energy items, also climbed to 4.7%, its highest level in nearly three years. The rise in core inflation indicated that price pressures were spreading more broadly across the economy, beyond a narrow set of items.

The BSP maintained its inflation forecast of 6.1% for this year and kept its estimate of 3.3% for 2028, but raised its 2027 inflation projection to 6% from 5.4%. Officials indicated that headline and core inflation could continue to increase over the next few months and remain elevated in the early months of 2027 before easing toward the 3% midpoint target in 2028.

Policymakers highlighted persistent upside risks to inflation, including high global oil prices, transportation fare increases, a weakening peso and potential supply disruptions linked to El Niño. They described El Niño as the top inflation risk, noting that a stronger weather event could significantly affect agricultural production and push food prices higher.

The Monetary Board said a strong monetary policy response was needed to address broadening price pressures and further upside risks to inflation. Officials characterized the 50-basis-point adjustment as a decisive step to tighten monetary conditions, contain spillover effects and firmly anchor inflation expectations.

The decision to raise by 50 basis points was backed by a strong majority of the Monetary Board, driven by concerns about falling behind the curve. Authorities signaled they stand ready to take further monetary policy action if necessary to secure a timely return of inflation to target, while noting that domestic economic activity is expected to recover, supported by fiscal measures.

The rate hike came against a backdrop of currency pressure, with the peso closing at P63.52 per dollar, a new all-time low. Officials emphasized that policy tightening is aimed at price stability rather than directly supporting the currency, adding that foreign exchange intervention is focused on smoothing sharp swings.