Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. said the decision to raise the policy rate to five percent on Thursday, Aug. 27, “wasn’t so hard,” while expressing hope that the latest increase would be the last of the current tightening cycle.
Remolona told a press briefing that the policy-setting Monetary Board (MB) considered “all possibilities” before unanimously deciding to raise the benchmark rate by another 25 basis points (bps).
“The decision to hike by 25 bps wasn’t so hard,” Remolona said.
The increase, the third this year, brought the benchmark rate to five percent from 4.75 percent and cumulative tightening since April to 75 bps.
While the latest hike was largely prompted by the need to preempt emerging inflation risks, Remolona said the BSP hopes further tightening will no longer be necessary.
“We’re hoping that we won’t need another rate hike,” Remolona said, pointing to the preemptive nature of Thursday’s increase.
The BSP, however, significantly raised its inflation forecast for next year even as it lowered its projection for 2026.
BSP Assistant Governor Rogelio V. Mercado Jr. said the central bank now expects inflation to average 6.1 percent in 2026, lower than its previous forecast of 6.4 percent.
For 2027, however, the inflation forecast was raised to 5.4 percent from 4.5 percent previously, keeping it well above the BSP’s two- to four-percent target range.
Headline inflation is expected to return to the three-percent target by 2028.
The revised outlook comes as inflation eased to 6.2 percent in July from 6.4 percent in June and a more-than-three-year high of 7.2 percent in April.
Remolona said oil-price volatility remains a concern, but other emerging risks have become more important to the BSP’s policy calculations.
“Other risks are bigger,” the BSP chief said.
Among these are the potential impact of severe El Niño conditions on agricultural production and prices, as well as further adjustments in minimum wages that could generate broader second-round effects.
Remolona indicated that developments in these areas would play a major role in determining whether the BSP would need to tighten monetary policy again.
The BSP’s decision to continue raising borrowing costs comes despite the sharp slowdown in the domestic economy, with gross domestic product (GDP) growth averaging just 2.6 percent in the first half.
Remolona, however, pushed back against concerns that tighter monetary policy could further choke near-term economic growth, stressing that maintaining price stability remains the central bank’s primary responsibility.
“Our mandate is price stability, which means low inflation,” Remolona said, noting that achieving price stability is consistent with sustaining economic growth over the longer term.
He added that the BSP does “not really have the tools to boost growth in the short run at the expense of inflation.”
Instead, Remolona is counting on fiscal measures to provide greater support to the economy in the second half, while monetary policy remains focused on containing inflation and keeping inflation expectations anchored.
The BSP maintained that economic fundamentals remain intact despite the weak first-half performance and expects growth to strengthen in the second half with support from fiscal measures.
For monetary policy, however, Remolona made clear that Thursday’s increase was intended to get ahead of inflation risks rather than wait for them to materialize.
Whether the five-percent policy rate proves sufficient will depend largely on how those risks—particularly El Niño and wage adjustments—develop in the coming months.