The Bangko Sentral ng Pilipinas (BSP) signaled a shift toward a tightening cycle, with the central bank chief indicating that the recent quarter-point increase in the benchmark borrowing rate is likely the first of several gradual moves to tame resurgent price pressures.

BSP Governor Eli M. Remolona Jr. told reporters at an April 23 briefing that it is “fairly safe to say” the era of monetary easing has concluded.

But Remolona noted that the BSP prefers a measured cadence of interest rate hikes over aggressive, one-off adjustments to avoid shocking the domestic economy.

“Once we start raising the policy rate, we’re likely to raise it again,” Remolona said. “That’s a better strategy than raising it just one time and making a big hike instead of a small hike.”

At the latest policy meeting, the Monetary Board (MB) considered various scenarios, including a “bad” scenario that would warrant a 50-basis-point hike. In this case, there would be clear evidence that inflation expectations are beginning to de-anchor, alongside expectations that the Middle East conflict will be prolonged.

According to the BSP, this preemptive tightening was driven by a deteriorating inflation outlook linked to the ongoing conflict in the Middle East, which has driven up oil and fertilizer prices.

These supply shocks are expected to spill over into food and service costs, pushing headline inflation well beyond the government’s two- to four-percent tolerance range. The BSP has revised its inflation forecasts to 6.3 percent for 2026 and 4.3 percent for 2027.

Remolona warned that inflation will likely remain above five percent for most of the current year. While the BSP is committed to the inflation target, Remolona said the MB does not expect inflation to return to the tolerance range until 2028.

“We think it will still be above the tolerance range in 2027, but we think it will be within the tolerance range by 2028,” he said.

Despite the rate hike, the BSP maintains that its monetary stance remains accommodative in real terms. With inflation projected at over six percent, the real interest rate on borrowing is still negative, estimated at around -1.5 percent.

“I wouldn’t say a policy rate hike makes borrowing costly, because inflation is also rising. In real terms, when you calculate the real interest rate on borrowing, it remains negative,” Remolona said.

This accommodative environment is intended to support an economic recovery expected to gain momentum in the coming months. The BSP projects GDP growth will reach between four and five percent in 2026.

“Most of this year’s growth will come from the second half, with fiscal policy supporting the recovery. We expect this trend to continue through 2027,” BSP Deputy Governor Zeno Ronald R. Abenoja, who handles the monetary and economics sector (MES), said.

Recall that the BSP, in the first quarter of the year, said monetary policy had reached the limits of its effectiveness in reviving the Philippine economy, shifting the burden to the government to implement fiscal reforms and address governance failures.

Growth is now expected to accelerate further in 2027, reaching “closer to six percent.” Remolona emphasized that the BSP is performing a balancing act, attempting to anchor inflation expectations and contain second-round effects without “hurting the economy too much.”

Reyes Tacandong & Co. senior adviser Jonathan Ravelas said the decision to increase key borrowing costs is the “right, calibrated, and preemptive move.”

“With oil and food prices feeding into core inflation and expectations starting to drift, acting early helps anchor credibility without choking growth. This is smart risk management—small, timely adjustments now to avoid much bigger and more painful hikes later,” Ravelas said.

For markets, the economist said the move strengthens the BSP’s commitment to managing inflation, lends support to the peso, and signals steady policy amid rising global uncertainties.