Bangko Sentral ng Pilipinas

Bangko Sentral’s off-cycle hike brings rates to 6.5% as inflation sizzles

Lance Spencer Yu

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Bangko Sentral’s off-cycle hike brings rates to 6.5% as inflation sizzles


(1st UPDATE) The central bank governor does not rule out the possibility of another rate hike by November 16, noting that any decision would depend on the yet to be released GDP data for the third quarter of 2023 and the latest consumer price index data

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) hiked interest rates by 25 basis points (bps) to bring the key policy rate to 6.5%, weeks ahead of its November 16 monetary policy meeting.

This off-cycle hike marks the first time that the BSP raised rates since March 2023. Before the announcement on Thursday, October 26, the rate settled at 6.25% for five consecutive monetary policy meetings.

Interest rates on the overnight deposit and lending facilities will be set at 6% and 7%, respectively. The rates will be effective starting Friday, October 27.

“The Monetary Board recognized the need for this urgent monetary action to prevent supply-side price pressures from inducing additional second-round effects and from further dislodging inflation expectations,” BSP Governor Eli Remolona Jr. said during the Thursday press briefing.

For Remolona, who chairs the central bank’s Monetary Board, the off-cycle hike also serves as a “catch up” effort, given indications that inflation expectations for 2024 are still higher than the target range.

“In my view, I think we fell a little bit behind,” Remolona said. “We didn’t look closely enough at expectations…. About 92% of consumers think that in the next 12 months, inflation will be above 4%. It’s similar for expectations by firms.”

The governor did not rule out the possibility of another rate hike during the Monetary Board’s November 16 meeting. Whether rates would go up again will depend on the gross domestic product data for the third quarter of 2023 and latest consumer price index data, Remolona said.

“We will consider it if things are worse than we thought. We’re hoping that the data are nicer to us. But if not, then we will have to consider a further rate hike,” he added.

The hike also comes days after Remolona told reporters that the central bank was considering hiking rates as early as today, Thursday.

“If the data says inflation will go up very significantly, and there’s a risk of affecting inflationary expectations, then we may go for an off-cycle hike as early as this Thursday,” Remolona said on Tuesday, October 24.

Inflation still off-target

Inflation for the month of October has yet to be publicly released as the Philippine Statistics Authority (PSA) is expected to announce the figure by early November. The latest PSA inflation data in September, however, painted a grim picture as inflation soared for the second straight month to 6.1%, driven by rising food prices. In the same month, rice inflation reached a 14-year high.

Average inflation from January to September 2023 stood at 6.6%​​, pushed further away from the government’s target range of 2% to 4%. 

Following the September monetary policy meeting that continued a months-long rate pause, Remolona told reporters that the central bank still expected inflation to settle within an elevated “target path” by November 2023. The BSP sees inflation averaging at 5.8% in 2023, and further falling to 3.5% by 2024 and 3.4% by 2025.

Now, the BSP has abandoned its forecast of getting inflation under the target range within 2023. It hopes that the current off-cycle hike can finally bring inflation down to the government’s target range by the middle of 2024.

“From March to July next year, the headline inflation will very likely be above 4%,” Remolona said, adding that it would stay around 3% beyond July and for the rest of 2024.

This isn’t the first time that the BSP announced an off-cycle hike. Back on July 14, 2022, the central bank brought its key policy rate up by a massive 75 bps. Then-Governor Felipe Medalla said the “urgent action” was needed to “temper mounting risks to the inflation outlook.”

Since May 2022, the BSP has hiked its key policy rate by a total of 450 bps as it tries to control inflation. –

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Lance Spencer Yu

Lance Spencer Yu is a multimedia reporter who covers the transportation, tourism, infrastructure, finance, agriculture, and corporate sectors, as well as macroeconomic issues.