The Philippine central bank, Bangko Sentral ng Pilipinas (BSP), raised its policy rate by 25 basis points to 4.50% on Thursday, marking the end of its monetary loosening cycle that began in 2023 and the start of a new tightening phase aimed at anchoring inflation expectations and maintaining financial stability [1][2]. Governor Eli Remolona indicated that further rate hikes are likely, stating, 'Once we start raising the policy rate, we’re likely to do it again,' and revealed that a 50bp hike was considered during the meeting [2]. The decision was made as headline CPI climbed to 4.1% year-on-year in March 2026, exceeding BSP’s inflation target range of 2-4% [2].
The rate hike comes amid persistent inflationary pressures, particularly from higher food and transport costs, and regional instability including the ongoing Iran conflict, which has left the Philippine peso underperforming regional peers due to the country's high exposure to Middle East energy prices [1][2]. Market analysts noted that the rate increase could help support the peso, which has faced depreciation pressures in recent months, but also cautioned that higher borrowing costs may weigh on domestic demand and investment, potentially slowing the recovery [1]. Despite the hawkish tone and higher inflation forecasts, the rate hike failed to lift the weak currency, and traders are watching key support and resistance levels for the peso and government bonds, with technical indicators suggesting cautious sentiment in local equity and bond markets [1][2].
BSP lowered its full-year growth projection to 4.3% from 4.6%, which is below the government’s target range of 5-6% [2]. The central bank downplayed the possible drag on growth from higher policy rates, suggesting that the current stance 'will still accommodate economic recovery over the medium term,' and expressed confidence that fiscal policy is sufficient to support growth [2]. However, risks are tilted to the downside amid supply chain disruptions from the Middle East conflict, limited fiscal support due to slower public spending disbursements, and weaker economic sentiment following several large-scale graft allegations concerning politicians [2].
Looking ahead, price pressures are expected to become more widespread, especially through transport and fertilizer price channels, with higher global commodity prices potentially spilling over into the core CPI basket and raising the risk of second-order impacts [2]. BSP is monitoring inflation expectations closely to ensure supply-side inflationary pressures do not distort wage-setting dynamics, keeping supply-side price pressures sticky [2]. Governor Remolona emphasized the bank’s vigilance against upside risks to the inflation outlook and readiness to act decisively if price pressures intensify [1].
CONCLUSION
The Philippine central bank’s shift to a rate hike cycle underscores its commitment to combating inflation and stabilizing the peso, even as growth projections are revised downward and market sentiment remains cautious. While the policy move aims to anchor inflation expectations, ongoing regional instability and domestic challenges pose downside risks to economic recovery. Investors and analysts will closely monitor further rate decisions and their impact on currency and bond markets.