(Oct 26): The Philippine central bank resumed tightening monetary policy in an off-cycle move on Thursday, and signalled that it’s ready to deliver “follow-through policy action” if necessary to bring inflation back to the target.

The Bangko Sentral ng Pilipinas (BSP) will increase its target rate by 25 basis points to 6.5% effective from Friday, governor Eli Remolona said in a briefing. “The monetary board recognised the need for this urgent monetary action to prevent supply-side price pressures from inducing additional second-round effects and further dislodging inflation expectations,” he said.

The move telegraphed by the the governor earlier this week takes the cumulative BSP rate increases since May 2022 to 450 basis points, in the bank’s most aggressive tightening in two decades.

Further tightening will be considered in the Nov 16 policy meeting, according to Remolona, who said in his personal view the BSP “fell a little bit behind”, after it decided not to raise the rate in the September meeting, when inflation risks had already increased.

“That is the reason for this effort to catch up,” the governor said. The rate panel “deems it necessary to keep monetary policy settings tighter for longer until inflationary expectations are better anchored and a sustained downward trend in inflation becomes evident”.

The BSP has raised its “risk-adjusted” inflation forecast for 2024 to 4.7%, from a previous estimate of 4.3%, Remolona said, well above the 2% to 4% target. Inflation risks have risen after global oil prices soared, as the Middle East conflict intensified.

The Philippines is the latest to resume tightening, after Indonesia surprised with a quarter-point move last week. The Reserve Bank of Australia’s new governor this week said policymakers won’t hesitate to raise rates if there’s a “material upward” risk to the inflation outlook. Singapore opted to review policy settings quarterly instead of biannually to respond to economic data faster.

The Philippine peso held its loss after the decision, with the currency trading 0.2% weaker at 56.97 per dollar as of 3.54pm local time. A rate hike may help bolster the peso, which slid about 4% in the past three months.

Remolona himself has doubled down on hawkish rhetoric since he took office in July, raising the possibility of an unscheduled rate increase just days after the BSP kept the policy rate unchanged for a fourth straight meeting on Sept 21.

The minutes of that meeting released on Oct 19 showed that authorities already saw risks of missing the central bank’s 2% to 4% inflation target for a third year in 2024, amid price threats from El Nino, food supply constraints and higher power and transport costs.

The BSP’s hawkish stance, however, has drawn concerns from other government officials, who warned of monetary tightening’s long-term impact on economic growth.