MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) on Thursday, April 23, raised the country’s key interest rate to 4.5% as the ongoing conflict in the Middle East pushed local inflation higher.

This is the first time that the monetary authority tightened rates in two years.

BSP Governor Eli Remolona Jr. said that the central bank’s outlook on inflation has “deteriorated” as the Middle East conflict raises domestic fuel and food prices. The government also declared a national energy emergency in late March as the conflict threatened the stability of the country’s energy supply.

Central banks usually use the key interest rate as a tool to control inflation. A higher interest rate aims to help cool down inflation by raising borrowing costs and temper spending.

“Higher oil and fertilizer prices are expected to spill over to food prices and services. Core inflation is rising, highlighting the risk of demand-driven inflation,” he said.

The BSP also raised its inflation forecast for 2026 and 2027 to 6.3% and 4.3%, respectively.

Inflation in March nearly doubled to 4.1% as surging fuel costs pushed food and transport prices higher.

In a separate statement, the BSP said the Monetary Board deemed it necessary to take preemptive policy action to safeguard price stability.

Remolona said that the effects of policy rate movements often take longer to be felt by consumers.

“The peak effect might be one year. But in situations like this, where movements are big, then the effect could be, the lag could be shorter,” he explained.

In a rare off-cycle Monetary Board meeting in March, the BSP chose to keep interest rates at 4.25%. Remolona said that it wasn’t clear whether fiscal policy would start to kick in and impact the economy at the time.

“It seems we’re more confident now that fiscal policy will be more stimulative than before. The government will start spending more. I think spending of the government slowed down because of this effort to discipline its spending, and now I think they have more or less controls in place and they can begin to spend more,” he said. – Rappler.com