The Bangko Sentral ng Pilipinas (BSP) raised its key interest rate by 50 basis points on Thursday, signaling readiness for additional tightening to combat persistent inflationary pressures and support the Philippine peso amid its historic decline. The central bank increased the target reverse repurchase rate to 5.50 percent, a move largely unexpected by economists, with only one out of 25 surveyed anticipating such a substantial hike.

In its statement, the BSP cited broadening price pressures and heightened inflation risks as reasons for the decisive action, describing the tightening as necessary to maintain a restrictive monetary policy stance. The central bank emphasized its commitment to taking further steps as needed to ensure inflation returns to the target range in a timely manner.

Following the announcement, the Philippine Stock Exchange’s benchmark index fell 0.7 percent, ending a five-day rally. Meanwhile, the peso continued its downward trend, hitting a new record low against the US dollar after crossing the key threshold of 63 pesos per dollar last week. The weakening currency poses inflation challenges, given the country’s significant dependence on imported fuel and food products.

The rate increase reflects escalating concerns over inflation, exacerbated by higher global oil prices triggered by renewed conflict in the Middle East and rising transportation costs. Governor Eli Remolona acknowledged the urgency of the situation during a press briefing, noting that inflation forecasts had deteriorated more than initially anticipated.

“The forecasts were worse than we thought,” Remolona said, highlighting the risk posed by a potential severe El Niño dry spell, which could adversely affect agricultural output and further strain food supply. The central bank held its inflation forecast for 2026 steady at 6.1 percent while revising its projection for 2027 upward to 6.0 percent from 5.4 percent; inflation is expected to ease to 3.3 percent by 2028.

Since the outbreak of the Iran conflict earlier this year, the BSP has implemented total rate hikes amounting to 125 basis points, even as the Philippine economy registers its slowest growth pace since the COVID-19 pandemic. The recent move underscores the challenge of managing inflation while balancing economic growth concerns.

Emilio Neri Jr., lead economist at Bank of the Philippine Islands and the sole analyst who predicted the 50-point hike, said the central bank’s aggressive stance underscores its commitment to containing inflationary pressures. The BSP’s actions come as the country faces mounting external shocks and domestic vulnerabilities that continue to test its monetary policy framework.