The Monetary Board raised the target reverse repurchase rate by 50 basis points to 5.50 percent, and raised the overnight deposit and lending facility rates by the same amount, to 5.00 percent and 6.00 percent. It is the fourth consecutive meeting at which the BSP has tightened, taking total increases since April to 125 basis points, and the first half-point move since February 2023. At 5.50 percent the policy rate is at its highest since February 2025.
The Board said inflation is seen to accelerate further in the coming months, that average headline inflation is expected to remain high in 2027 and approach its 3 percent target only in 2028, and that core inflation is likewise projected to keep rising, a sign that price pressures are broadening. It pointed to renewed tensions in the Middle East driving global oil prices higher, to recent increases in transport fares, and to El Niño conditions threatening agricultural production and food prices. “The Monetary Board recognized the need for a strong monetary policy response to broadening price pressures and further upside risks to inflation,” the statement said, adding that a decisive response would make policy appropriately restrictive, contain second-round effects and anchor expectations, and that the Board stands ready to take further action if needed.
The size was the surprise. Twenty of the 22 analysts polled by BusinessWorld had pencilled in a quarter-point hike, all 27 economists in the Reuters poll expected 25 basis points, and all 11 economists surveyed by the Wall Street Journal expected 25 basis points. The expected outcome going into the meeting, including in this site’s calendar, was a fourth straight hike to 5.25 percent.
The decision lands against September inflation of 7.2 percent, a seventh straight month above the BSP’s target, core inflation of 4.7 percent, a peso that closed at a record low of 63.361 per dollar on October 21, and second quarter growth of 2.3 percent, a fourth straight quarterly slowdown. The BSP said it expects economic activity to recover on the back of fiscal measures. The Monetary Board’s last scheduled meeting of the year is on December 17, and Emilio Neri Jr., lead economist at BPI, told Rappler he expects a further 25-basis-point increase then, which would take the policy rate to 5.75 percent by year end.