Bangko Sentral ng Pilipinas Raises Interest Rate to 5%

The Bangko Sentral ng Pilipinas raised its benchmark interest rate by 25 basis points to 5% on August 27, 2026. This move marks the third consecutive hike following increases in April and June, serving as a preemptive monetary action to address inflation that reached 6.2% in July.

The central bank is targeting inflation that currently runs twice as fast as its 2% to 4% tolerance range. Officials expect inflation to exceed the 4% ceiling through 2027, driven by volatile oil prices resulting from conflict between the United States and Iran, potential agricultural price spikes from El Niño, and the impact of wage hikes.

Beyond inflation, the rate hike aims to support the Philippine peso, which recently hit a record low of 61.995 per dollar and became the worst-performing emerging Asian currency this month. This tightening occurs despite a significant economic slowdown, with second-quarter GDP growth dropping to 2.3% and gross capital formation contracting by 9.2%.

While central banks in Indonesia and Thailand recently maintained their rates, the Monetary Board indicated it remains prepared to take further action as warranted to fulfill its mandate.