Philippine Central Bank Lifts Key Rate to 5% to Tackle Sticky Inflation

The Bangko Sentral ng Pilipinas raised its benchmark policy rate by 25 basis points to 5 per cent on Thursday. The decision targets persistent price pressures across consumer staples and fuel.

Overnight deposit and lending facilities climbed to 4.5 per cent and 5.5 per cent. That brings a third straight quarter of tightening, following rate increases in April and June.

Headline inflation dropped to 6.2 per cent in July from 6.4 per cent in June, easing for a third consecutive month. Core inflation, which strips out volatile energy and food items, edged down to 4.2 per cent from 4.4 per cent. Both figures remain above the government target corridor of 2 per cent to 4 per cent.

Pressures across food, fuel and wages

Monetary officials warned that broader price pressures continue to build across supply networks. Volatile global oil benchmarks, potential crop losses from El Niño, and rising agricultural input costs threaten retail food prices nationwide.

Labor expenses also sit high on the central bank’s monitoring list. A pending minimum wage increase for Metro Manila remains frozen in court. Even so, authorities noted that higher payroll expenses will filter into consumer prices if businesses pass on the cost.

Bank of the Philippine Islands lead economist Emilio Neri Jr. Pointed out that monetary tightening cannot fix supply bottlenecks. Extreme weather, elevated fertilizer costs, and currency weakness threaten to drive import bills higher for retail operators and food manufacturers.

Slower growth tests consumer demand

Higher borrowing costs arrive at a delicate moment for consumer spending and commercial investment. Philippine gross domestic product expanded by 2.3 per cent in the second quarter, decelerating from 2.8 per cent in the first quarter. Gross capital formation shrank 9.2 per cent year-on-year.

Across Southeast Asia, central bankers are balancing household purchasing power against softening corporate investment. While regional peers have paused rate adjustments to protect domestic commerce, Manila is prioritizing price stability. The focus is on preventing inflation expectations from taking root in retail checkouts.

Average inflation will exceed the 4 per cent upper boundary through both 2026 and 2027 before settling near the 3 per cent target in 2028, according to central bank forecasts.