On 10 April 2025 the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) voted 5‑1 to raise the overnight reverse repurchase rate by 25 basis points, taking the benchmark to 6.75 percent. The move marks the fourth increase since December and brings the cumulative tightening in the current cycle to 150 basis points. Governor Eli Remolona described the decision as “pre‑emptive,” noting that March’s price data showed faster‑than‑expected rises in food and transport costs.
Inflation in the Philippines has stayed above the central bank’s 2‑4 percent target band for eight consecutive months, reaching 4.2 percent in March. Core inflation, which excludes volatile food and energy items, also accelerated to 3.9 percent, indicating that price pressures are broadening. The BSP now projects average inflation of 4.1 percent for 2025, up from an earlier forecast of 3.9 percent, before easing to 3.3 percent in 2026.
Food and energy items were the main drivers of the March price surge. Rice prices jumped 9.7 percent year‑on‑year—the steepest increase since 2019—after dry conditions linked to El Niño reduced yields and India tightened export curbs. In Metro Manila, electricity tariffs rose 11 percent as the state grid operator allowed higher generation charges to offset imported fuel costs. Together, rice, fish and electricity accounted for more than half of the overall inflation reading, according to the Philippine Statistics Authority.
In response to the supply‑side shocks, Finance Secretary Ralph Recto, who also sits on the Monetary Board, said fiscal agencies are moving to increase food imports and to roll out subsidies for low‑income households. The agriculture department has approved an additional 1.2 million metric tonnes of rice imports for the third quarter, while the energy department is reviewing the formula used to set fuel prices, which critics argue lets utilities pass cost spikes to consumers too quickly.
The peso, which had depreciated 2.4 percent against the U.S. dollar since January, gained roughly 0.3 percent after the rate hike was announced, as markets anticipated a narrowing of the interest‑rate differential with the United States. Nevertheless, swap markets now price a 70 percent chance of another 25‑basis‑point increase at the May meeting, with expectations that the policy rate could peak around 7.25 percent by September.
Growth expectations have been revised downward. The BSP cut its 2025 GDP forecast to 5.8 percent from 6.2 percent, citing tighter monetary conditions and weaker external demand. First‑quarter GDP data, due on 14 May, are expected to show growth slowing to about 5.4 percent, down from 5.7 percent in the final quarter of 2024. Private consumption, which drives roughly two‑thirds of output, has weakened as remittances from overseas Filipino workers fail to keep pace with price increases.
Economists highlighted the broader impact of the rate hike. ING Bank Manila senior economist Nicholas Mapa said the move “adds drag” to an economy still recovering from pandemic losses, noting that household debt now stands at a record 42 percent of GDP, making each rate increase directly affect mortgage and auto‑loan payments. The automotive sector reported a 13 percent drop in first‑quarter sales, and bank lending growth slowed to 7.8 percent in February, the weakest pace since 2021.
Business groups warned that higher borrowing costs could deter the investment needed to rebuild manufacturing capacity. Employers Confederation of the Philippines president Sergio Ortiz‑Luis urged the government to accelerate infrastructure projects to offset softer private demand, acknowledging that today’s hike will be felt as firms set capital budgets for 2026.
In the financial markets, yields on 10‑year government bonds rose eight basis points to 6.42 percent—the highest level since November—while the main stock index slipped 0.6 percent in thin trading ahead of the Easter weekend. Governor Remolona pushed back against expectations of an automatic continuation of tightening, emphasizing that the board remains “data dependent” and could pause if global oil prices retreat or fiscal measures ease food costs. He also signaled a possible shift toward shorter post‑meeting statements to limit market over‑interpretation.
Deputy Governor Francisco Dakila reaffirmed confidence in the BSP’s inflation‑targeting framework, pointing to five‑year breakeven inflation rates anchored near 3.2 percent. He noted ongoing work to improve inflation models to better capture climate‑related supply disruptions, which have become more frequent.
With inflation still accelerating and households grappling with higher rice and electricity bills, the BSP faces a delicate balancing act this summer. Policymakers must decide whether to extend the tightening cycle amid signs that earlier hikes have not yet fully filtered through the economy, while ensuring that the cost of borrowing does not become the next major burden for Filipino families.
