Philippine Central Bank Raises Rates Again, Citing El Niño and Wage Risks

The Philippine central bank has raised its benchmark interest rate for the third consecutive policy meeting, moving to pre-empt inflationary pressures from a strong El Niño and potential wage increases.

The Monetary Board voted to increase the rate by 25 basis points, bringing it to 5.0%. The decision, announced on Thursday, was in line with the expectations of most economists surveyed ahead of the meeting.

While headline inflation has been cooling — easing to 6.2% in July from 6.4% in June — the central bank said it is focused on risks on the horizon. A particularly strong El Niño could disrupt both domestic and imported rice supplies, it noted. The bank also flagged a government-approved 12% increase in the daily minimum wage for most workers in the capital region, though its implementation is currently challenged in court.

"The measured increases in the policy rate will continue to anchor inflation expectations and mitigate the risk of further second-round effects," the central bank said in a statement.

The bank trimmed its 2026 inflation forecast to 6.1% from 6.4%, but sharply raised its 2027 projection to 5.4% from 4.5%, underscoring the perceived threat from the climate pattern.

"We will tighten as much as we need to bring the inflation rate down to target," BSP Governor Eli Remolona told a press conference, while expressing hope that further hikes would not be necessary given weak economic growth. The central bank's inflation target is 3%.

Thursday's move follows two earlier 25-basis-point hikes in April and June, which were driven partly by higher energy prices. The economy expanded just 2.3% in the second quarter from a year earlier, its weakest pace since 2021, due to a slump in construction and softer domestic demand. Remolona said growth would likely rebound in the last quarter, with fiscal support providing a tailwind.

The central bank's next policy review is scheduled for October 22.