BSP hikes policy rates for 2nd straight meeting amid inflation concerns

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) on Thursday raised its key policy rates for the second consecutive meeting, citing "strong inflationary pressures" amid high global oil and fertilizer prices.

The move increased the target reverse repurchase rate to 4.75%, the overnight deposit rate to 4.25%, and the overnight lending rate to 5.25%.

"Inflationary pressures remain strong. Global oil and fertilizer prices remain elevated and continue to drive domestic fuel and food prices," the BSP said in a statement.

"Rising core inflation indicates broadening price pressures and second-round effects, including higher inflation expectations," it added.

The latest increase follows the Monetary Board's decision during its April 23 meeting to raise key policy rates by 25 basis points.

The BSP now expects inflation to average 6.4% this year, slightly higher than the 6.3% forecast made during its previous policy meeting, with Governor Eli Remolona Jr. citing global supply shocks stemming from the conflict in the Middle East.

"We were hit by a very unusual global supply shock, as you know, and it was more persistent than most people anticipated," he said during a press briefing at the central bank headquarters in Manila City.

“Even now with the ceasefire apparently being signed, we’re still not sure what will happen. Even if the Strait of Hormuz is opened today, if there’s a ceasefire today, we still need several months to rebuild the infrastructure before we can expect the price of oil to return to the levels before the conflict,” he added.

The central bank also raised its inflation forecast for 2027 to 4.5% from the previous 4.3% and set its 2028 inflation forecast at 3.1%.

Remolona said the BSP still has ample room for further monetary tightening, noting that even a 50-basis-point rate hike remains possible depending on data, although "baby steps" would still be preferable.

"I won't say the worst is over. We don't know. I hope it's over, but we don't really know," he said. —VBL, GMA News