BSP hikes rates by 50 basis points amid expected inflation, El Niño effects

The Bangko Sentral ng Pilipinas (BSP) on Thursday decided to implement a jumbo rate hike, extending its tightening streak for the fourth straight meeting, as it expects inflation to remain high through 2027.

The central bank hiked key policy rates by 50 basis points to bring the target reverse repurchase rate to 5.5%, the overnight deposit rate to 5.0%, and the overnight lending rate to 6.0%.

EXPLAINER: How the BSP’s interest rate hikes or cuts affect ordinary Filipinos

“Inflation is seen to accelerate further in the coming months. Average headline inflation is expected to remain high in 2027 and approach our 3.0-percent target in 2028,” the BSP said in a statement.

“Core inflation is likewise projected to continue to rise, indicating underlying price pressures. Renewed tensions in the Middle East have driven global oil prices higher,” it added.

The central bank also cited upside risks to inflation, with the recent transportation fare hikes and the expected impact of El Niño on agricultural production and prices.

The BSP has maintained its inflation forecast for 2026 at 6.1%, unchanged from the August policy meeting, but hiked its 2027 forecast to 6.0% from 5.4% previously. The 2028 forecast was unchanged at 3.3%.

“We took this decisive option because we forecast that inflation will accelerate further in the coming months, due to oil prices, transport fares, and the potential effects of El Niño on food prices,” BSP governor Eli Remolona Jr. told reporters in Manila City.

“This decisive adjustment will appropriately tighten monetary conditions in order to contain spillover effects and firmly anchor inflation expectations,” he added.

Remolona said inflation could hit as high as 8% in 2027, and up to 9% for the bottom 30% households. Inflation clocked in at 7.2% in September, the same level in April 2026, and the fastest since March 2023.

The governor said a “strong majority” voted for the 50-basis-point rate hike on Thursday, but did not elaborate.

The state weather bureau PAGASA said the record-breaking El Niño could bring less rain this October and could last until March or even June 2027. Around 40 provinces are expected to experience less rainfall during the dry spell and drought. Once January comes, this number could jump to 80.

US-based Climate Impact Lab has also warned of 6,500 heat-related deaths in the Philippines through February 2027 amid the El Niño.

The Monetary Board is scheduled to meet on December 17, 2026, its latest policy-setting meeting for the year.

“The BSP stands ready to take further monetary policy action as necessary to better ensure the return of inflation to the target, in keeping with our price stability,” Remolona said. — BM, GMA News

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