BSP raises interest rate to lessen impact of inflation

The Bangko Sentral ng Pilipinas (BSP) set interest rates on peso borrowings under its Discount Window Facility at 6.8615 percent for maturities of one to 90 days and 7.2230 percent for maturities of 91 to 180 days, effective October 26, 2026.

The rates are based on the BSP’s overnight lending rate, which the Monetary Board adjusted to 6.00 percent on October 22. At the same meeting, the board raised its target reverse repurchase rate by 50 basis points to 5.50 percent and adjusted the overnight deposit rate to 5.00 percent.

The BSP said the monetary policy response was necessary to address broadening price pressures and further upside risks to inflation.

In its October 23 announcement, the BSP said the spread applied to discount window borrowings may change periodically to complement changes in its monetary policy goals and reflect movements in market interest rates.

The Monetary Board said a strong policy response was necessary as inflation was expected to accelerate further in the coming months.

“Average headline inflation is expected to remain high in 2027 and approach our 3.0-percent target in 2028. Core inflation is likewise projected to continue to rise, indicating underlying price pressures,” the BSP said.

“Renewed tensions in the Middle East have driven global oil prices higher. Upside risks to inflation have materialized with the recent increase in transportation fares. El Niño conditions also continue to pose a risk to agricultural production and prices,” it added.

In its October 22 policy statement, BSP said the Monetary Board recognized the need for a strong monetary policy response “to broadening price pressures and further upside risks to inflation.”

It said the decisive response would make monetary policy appropriately restrictive, contain second-round effects, and firmly anchor inflation expectations.

Despite the inflation risks, the BSP expects domestic economic activity to recover with support from fiscal measures.

The central bank nevertheless signaled that additional monetary policy action remains possible as it seeks to bring inflation back to target.

“The BSP stands ready to take further monetary policy action as necessary to ensure the timely return of inflation to the target, in keeping with our price stability mandate,” it said.