The Philippine Stock Exchange Index (PSEi) and the peso both declined on Thursday after the Bangko Sentral ng Pilipinas (BSP) raised its benchmark interest rate to 4.5%, marking a continued aggressive stance against rising inflation.
The main index fell by 1.2% to close at 6,540.32, while the peso weakened by 0.3% against the US dollar, trading at ₱56.80. The BSP's move, which was widely expected by analysts, brings the cumulative rate hike to 175 basis points since May 2022.
"The decision is aimed at anchoring inflation expectations and preventing further second-round effects," BSP Governor Felipe Medalla said in a statement. "We remain vigilant and ready to adjust our policy settings as needed to bring inflation back to the target range."
Inflation in the Philippines has remained stubbornly high, with the November print at 8.0%, well above the BSP's 2-4% target. The central bank now projects inflation to average 5.8% for 2022 and 4.5% for 2023.
Market participants reacted with caution, with many investors reducing exposure to equities and moving to safe-haven assets. "The rate hike is necessary but it does weigh on economic growth prospects," said a trader from a local brokerage. "We're seeing a shift toward defensive stocks and bonds."
The BSP's next monetary policy meeting is scheduled for February 16, 2023.