The Bangko Sentral ng Pilipinas (BSP) raised its key policy interest rate by 25 basis points on Thursday, marking its first tightening move in over two years as rising global oil and food prices stoke inflation.
The Monetary Board's decision brings the benchmark rate, which influences bank lending costs, to 4.5 percent.
"The inflation outlook has deteriorated amid the ongoing conflict in the Middle East. Higher global oil and fertilizer prices have begun feeding through to domestic fuel and food prices. At the same time, core inflation has continued to rise, pointing to a broadening of underlying price pressures," the BSP said in a statement.
The move was correctly predicted by 10 out of 16 economists polled by the Inquirer last week.
Higher borrowing costs are intended to encourage households to cut spending, thereby easing demand-driven price pressures but also potentially slowing economic activity.
However, the Philippines—the first country to declare a national energy emergency amid Middle East turmoil—is grappling with supply-driven inflation after the war disrupted global oil exports. The central bank has acknowledged that such challenges are not best addressed through rate hikes, which could also delay the economy's recovery from the fallout of the flood control scandal.
Despite the limits of monetary policy, analysts have said raising rates could help anchor inflation expectations.