THE Bangko Sentral ng Pilipinas (BSP) raised its benchmark interest rate by 25 basis points to five percent on Thursday, Aug. 28, 2026, citing persistent upside risks to inflation from volatile oil prices, potential El Niño-related increases in food costs, and possible wage adjustments.
The Monetary Board also increased the overnight deposit facility rate to 4.5 percent and the overnight lending facility rate to 5.5 percent.
The BSP said inflation has eased but underlying price pressures are broadening, with core inflation also pointing to wider increases in prices.
It said severe El Niño conditions could push up agricultural prices, while wage adjustments could have broader effects on price-setting and trigger second-round inflationary pressures.
“These underlying price risks require preemptive monetary action,” the central bank said in a statement.
Despite the rate hike, the BSP expects average headline inflation to exceed its four percent tolerance ceiling in both 2026 and 2027. Inflation is projected to ease thereafter and settle close to the BSP’s three percent target by 2028.
The central bank said the measured increases in its policy rate would help anchor inflation expectations and contain the risk of further second-round effects.
The BSP acknowledged that economic growth slowed in the first half of 2026 but said the economy’s medium-term fundamentals remain intact. Growth is expected to strengthen in the second half of the year, supported by fiscal measures.
The Monetary Board said it remains ready to adjust monetary policy as needed to bring inflation back to the three percent target and fulfill its price stability mandate. / KOC