BSP hikes rates amid national energy emergency

The Bangko Sentral ng Pilipinas (BSP)’s Monetary Board has raised interest rates by 25 basis points in response to mounting economic pressures from the ongoing Middle East conflict.

At a Thursday press conference at the central bank’s headquarters, BSP Governor Eli M. Remolona Jr.—who chairs the Monetary Board—said policymakers increased the Target Reverse Repurchase (RRP) rate by 25 basis points to 4.5 percent, reversing the 25-basis-point cut implemented in February.

“The reason is clear: the inflation outlook has deteriorated amid the ongoing conflict in the Middle East. Higher oil and fertilizer prices are expected to spill over into food prices and services,” he said.

“Headline inflation is now projected to breach our tolerance range not just this year, but in 2027 as well. Inflation expectations are rising further, increasing the risk that they will become unanchored,” Remolona added.

The RRP serves as the BSP’s primary monetary policy tool, acting as the benchmark for overnight lending to banks. Adjustments to the rate influence borrowing costs, liquidity conditions, and inflation trends, and are guided by the central bank’s assessment of inflation dynamics, domestic demand, and global economic developments.

A lower RRP increases liquidity in the economy, with the objective of stimulating consumption—the main driver of Philippine growth—and investment. However, this can generate inflationary pressures, which had remained manageable prior to the conflict’s escalation.

The central bank had previously cut the RRP by a cumulative 50 basis points in December 2025 and February 2026 amid weaker-than-expected economic growth last year. Inflation also hovered near the lower end of the BSP’s 2 to 4 percent target range, giving policymakers room to ease policy.

However, the escalation of the Middle East conflict early last month led to elevated fuel prices and transport costs, pushing headline inflation up by 1.7 percentage points to 4.1 percent in March. The BSP now expects inflation to breach its 2 to 4 percent target range over the next two years, with projections reaching 6.3 percent in 2026 as energy-driven spillover effects spread to other goods and services.

Remolona said a 50-basis-point hike had been considered, noting that Thursday’s move could mark the end of the BSP’s easing cycle as fuel prices remain elevated, with diesel still in the triple-digit-per-liter range.

“This measured increase is intended to contain the build-up of spillover effects and keep inflation expectations anchored. It should still accommodate economic recovery in the near term,” he said.

The Monetary Board had convened off-cycle on 26 March to assess emerging risks from the conflict, opting at the time to keep rates steady given the limited effectiveness of monetary policy in addressing supply-side shocks. Remolona had earlier warned that a rate hike would be “painful,” citing a weak growth outlook for the year.

The BSP has since rolled out relief measures for borrowers and financial institutions to cushion the impact of the ongoing energy emergency on Filipinos.