Lifting its key interest rate to 5.5% with a 50-basis-point increase, the Bangko Sentral ng Pilipinas (BSP) delivered its first half-point hike since February 2023, according to an October 22 report by BusinessWorld.

The decision comes as the Philippines faces inflation of 7.2% in September, matching the year's peak, while economic growth has slowed to its weakest pace since the pandemic. Consumer prices have exceeded the central bank's 3% target for seven months in a row, pushed up by fresh increases in the cost of oil, food, housing and utilities. The approach of El Niño has added to the risks.

Following the Monetary Board's decision, the target reverse repurchase rate now sits at a peak not seen since February 2025, when it was 5.75%, and matches the rate that applied in April 2025. The overnight deposit facility now stands at 5% and the overnight lending facility at 6%, with each climbing 50 bps.

"The Monetary Board recognized the need for a strong monetary policy response to broadening price pressures and further upside risks to inflation," the BSP said in a statement.

"Such a decisive response will make monetary policy appropriately restrictive. This will contain second-round effects and firmly anchor inflation expectations," the central bank added.

The increase was the BSP's fourth tightening at consecutive meetings and brings cumulative hikes since April to 125 bps.

Most economists had forecast a smaller move. Of 22 analysts polled by BusinessWorld, 20 expected a quarter-point rise, and only two correctly predicted the 50-bp increase.

Headline inflation has averaged 5.4% so far this year. Core inflation, which excludes volatile food and fuel prices, climbed to 4.7%, its highest in close to three years.

Despite a faltering economy, the central bank opted to tighten, counting on government fiscal measures to help bring about a recovery. From April to June, gross domestic product grew just 2.3%, a post-pandemic low that marked the fourth consecutive quarter of slowing growth and brought expansion for the first half to 2.6%.

The government is targeting economic growth of between 3.5% and 4.5% this year.