The Philippine central bank increased its benchmark interest rate for a second consecutive meeting, as it braces for a prolonged battle against inflation despite an interim US-Iran peace deal.
The Bangko Sentral ng Pilipinas (BSP) raised its target reverse repurchase rate by a quarter of a point to 4.75 per cent on June 18, as predicted by 23 of 30 economists in a Bloomberg News survey. The rest had expected a 50-basis point hike.
The central bank said inflationary pressures remain strong. “Rising core inflation indicates broadening price pressures and second-round effects, including higher inflation expectations,” it said in a statement.
Latest projections by the BSP point to a higher inflation path, with average headline inflation seen breaching the central bank’s 4 per cent “tolerance ceiling” in both 2026 and 2027, it said. For 2028, the BSP said it sees inflation settling slightly above its 3 per cent goal.
“On balance, the Monetary Board decided that monetary policy tightening is warranted,” the central bank said. “Today’s policy action will help keep inflation expectations anchored and mitigate the risk of second-round effects.”
The Monetary Board “is prepared to take further monetary action as needed to ensure that inflation returns to the 3 per cent target,” it added.
The continued monetary tightening underlines the caution taken by Asia’s central banks, even as the US and Iran agree to reopen the Strait of Hormuz that is vital to the flow of energy supplies.
The Bank of Japan raised its policy rate on June 16 and pledged more hikes to quell inflation risks. Bank Indonesia is expected to follow suit on June 18.
The Philippines, which imports nearly all of its oil requirements from the Middle East, has been among the hardest-hit nations. While inflation eased in May to 6.8 per cent, it remains well above the central bank’s 2 per cent to 4 per cent target.
The government has warned it could take up to a year before local fuel prices return to pre-war levels.
Meanwhile, the Federal Reserve stood pat on June 17, with chairman Kevin Warsh refraining from providing clear rate guidance. Many Fed officials, however, expect they will need to raise rates at least once in 2026 – a stance that can prop up the dollar.
The Philippine peso has recovered from its record low of 61.75 to the greenback earlier in June, but it remains down 2.8 per cent in 2026. BLOOMBERG
