The decision-making Monetary Board raised the policy rate by 75 basis points to 5 percent to indicate the central bank's determination to stamp out inflation.

Accordingly, the interest rates on the overnight deposit and lending facilities will be set to 4.5 percent and 5.5 percent, respectively.

"The Bangko Sentral ng Pilipinas' latest baseline forecasts indicate a higher inflation path over the policy horizon, with average inflation breaching the upper end of the 2-percent to 4 percent target range in both 2022 and 2023 at 5.8 percent and 4.3 percent, respectively," BSP Governor Felipe Medalla said.

Moreover, the governor added the forecast for 2024 has also risen slightly to 3.1 percent.

External pressure

The MB also noted that core inflation has risen sharply in October, indicating stronger pass-through of elevated food and energy prices as well as demand-side impulses on inflation.

"At the same time, the risks to the inflation outlook lean strongly toward the upside until 2023 while remaining broadly balanced in 2024," Medalla added.

The governor said upside risks are associated with elevated international food prices owing to higher fertilizer costs, trade restrictions, and adverse weather conditions.