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Philippines inflation rate: A climbing CPI and bold interest rate hikes

By Fitri Wulandari

Edited by Vanessa Kintu


Map of east Asia with a Phillipines flag
The inflation rate has accelerated in the Philippines – Photo: hyotographics / Shutterstock

Bangko Sentral ng Pilipinas (BSP), the Philippines’ central bank, has maintained its aggressive rate hikes this month, hoping to crush soaring inflation.

The inflation reading in the Southeast Asian nation has accelerated as storm damage forces up food prices. Rising inflation, which has stayed well above the BSP’s target of a maximum of 6%, forced the bank to raise its policy interest rate by another 75 basis points (bps) to 5% in November. 

What factors drive the Philippine inflation rate? Will the inflation rate ease in the near and medium term?

In this article, we discuss the Philippines’ monetary policy, inflation rate and the latest Philippine interest rate forecasts from analysts.

What is the Philippine central bank?

Bangko Sentral Ng Pilipinas (BSP) is the central bank of the Philippines. Although the concept of the central bank’s role in the Philippines dates back to 1933, the Central Bank Act of 1948 was the first to formally establish it.

BSP’s role monetary policy had a major overhaul in 1993 the country then president, Fidel Ramos, signed into law the New Central Bank Act. The law mandated the maintenance of price stability as BSP’s primary objective. 

​The monetary board carries out the BSP’s roles and responsibilities, including managing monetary policy and overseeing the financial system. The board is presided over by the BSP governor, with five full-time members from the private sector and one from the cabinet.

In January 2002, BSP adopted the inflation-targeting monetary policy to achieve its price-stability objective. Under the inflation-targeting approach, BSP compares actual headline inflation and inflation forecast. 

The BSP and the Philippine government jointly set the inflation target through an inter-agency body, The Development Budget Coordination Committee (DBCC). BSP must commit to achieve the inflation target over a given period of time by mainly adjusting its key policy interest rate, the overnight Reverse Repurchase rate (RRP). 

For 2022 to 2024, the Development Budget Coordination Committee (DBCC) has approved the inflation target range of 3%, plus or minus one point, or between 2% and 4%. However, the central bank’s latest forecasts indicate that inflation would not return to the target range until 2024.

Philippine interest-rate history

Philippines 10-year interest rate chart

According to the Philippines’ interest-rate history from economic data provider TradingEconomics, the key interest rate in the Philippines averaged 7.4% from 1985 to 2022. The all-time high of 31% was recorded in January 1985, while a record low of 2% occurred in November 2020.

Throughout 2020, BSP cut its overnight reverse repurchase (RRP) six times to support the economy from the adverse impact of Covid-19 pandemic restrictions. The cuts brought interest rates in the Philippines down to 2% in November 2020 from 3.75% in February. BSP held the rate at 2% until March 2022. 

The Philippine economy was hit particularly hard by the pandemic, as the country imposed one of the world’s longest lockdowns to curb the spread of the virus.

Former president Rodrigo Duterte declared a state of calamity on 16 March 2020 for six months nationwide, which was extended until 12 September 2022. The economy contracted by 9.5% in 2020, though by 2021 the contraction had eased to 5.6%.

BSP started to raise the overnight RRP in May by 25bps to 2.25% on expected rising inflation. At the time, the central bank expected inflation to average 4.6% in 2022, exceeding the upper limit of its 2% to 4% inflation target. For 2023, it forecast inflation to fall to 3.9%.

BPS maintained its hawkish monetary policy, raising the overnight RRP six times this year. The latest hike of 75bps is the highest in nearly 14 years.

Emilio Neri, an economist at the Bank of the Philippine Islands, said that if the Fed raises its policy rate to 5.25%, the Philippines’ overnight borrowing rate could exceed 6.0%.

Felipe Medalla, governor of the Bangko Sentral ng Pilipinas, said he was confident the economy could withstand further rate hikes, despite the faster-than-expected 7.6% rate increase in the third quarter.

Food prices and inflation

Annual Consumer Price Index (CPI) inflation in the Philippines accelerated to 8% in November, from  7.7% in October 2022. The current Philippines inflation rate is the highest recorded inflation since November 2008, Philippines Statistics Authority announced on 6 December.

With November’s inflation, the Philippines’ average inflation rate from January to November 2022 stood at 5.6%. In November 2021, inflation was observed at 3.7%.

Food and non-alcoholic beverage prices accelerated by 10% compared to 9.4% in October and remained the main driver to push up inflation rate.

Food, beverages and alcohol (FBT) account for half the country’s inflation basket, making it vulnerable to volatile farm prices. In recent months, a shortage of sugar after Typhoon Rai – which struck the country towards the end of 2021 – damaged sugar plantations, causing prices to spike.

Back in August, the state-run Philippine News Agency reported that the country’s Department of Agriculture had drafted a proposal to import 150,000 tonnes of sugar to respond to fears of a shortage from the country’s beverage industry. 


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In a report by Nicholas Mapa on 6 December, the ING analyst commented:

Supply disruptions caused by two deadly storms pushed up vegetable prices. Meanwhile, both utilities and transport costs posted slightly slower price increases, tracking the moderation in global energy pricesInflation was also driven by strong demand side pressures with items related to so-called revenge spending reporting faster inflation.”

Costs for restaurants and hotels picked up to 6.5% in November from 5.7%, year-over-year (YoY), and personal care accelerated 4.2% YoY from 3.7%, the fifth straight month of accelerating inflation and with domestic demand resurgent.

Mappa expected the inflation trend could continue into 2023.

Rising inflation slows economy

 Philippines’ GDP 2018-2022

The Philippines’ gross domestic product (GDP) grew by 7.6% in Q3 2022, faster than 7.5% in Q2 and above market expectations. The main contributors to the growth in this quarter were the wholesale and retail trade; motor vehicles and motorcycle repairs; financial and insurance activities; and construction.

Major economic sectors – agriculture, forestry, and fishing, industry and services – all posted positive growth in the third quarter of 2022 with 2.2%, 5.8%, and 9.1%, respectively.

The BSP’s November monetary policy report stated: “Inflation is projected to remain elevated in the near term. The latest forecast path indicates that inflation is likely to peak in Q4 2022 and remain above the national government’s target range of 2%-4% until Q2 2023. Inflation is then seen to decelerate back to within the target range by Q3 2023 and approach the low end of the target range in Q4 2023 to Q1 2024 due to negative base effects, and eventually stabilise at the midpoint of the target by Q2 2024.”

ANZ Research economists Debalika Sarkar and Raymond Yeung believe inflation poses a downside risk for the Philippines’ economic growth, noting:

“Inflation risks remain, as producers pass higher costs on to consumers. In fact, the momentum in private consumption will be hard to sustain in the second half of 2022, as the rising cost of living will compel households to rethink spending decisions.” 

ING Group expects the country’s economic growth to slow to 4.7% in 2023, from a forecast of 7.5% in 2022. The economy was projected to rebound to 5% and 5.5% in 2024 and 2025 respectively, according to the bank’s latest forecast as of 9 December.

ING’s economist Mappa wrote in a note on 10 November:

“With the holidays fast approaching, we can expect growth momentum to remain intact, with household spending likely supporting overall economic activity for the first holiday without mobility restrictions. Meanwhile, the department of education allowed students to return to classrooms for this school year, which may generate more spending activity as well.”

Bank of America has maintained its forecast for the Philippines’ GDP growth at 6.5% for 2022 and 5.5% for 2023.

“In 2023, our growth estimates are more subdued until the inflation-interest rate challenges subside,” it said. “We also await the government’s 2023 spending plan and what role can the private sector play, if any, in sustaining the infrastructure build-up.”

Fitch Solutions on 11 November revised upward its Philippines’ GDP forecast for 2022 to 7.4%, from the previous estimate of 6.6%.

“Nevertheless, with inflation set to remain elevated, continued domestic policy rate hikes looming and global growth weakening, we expect that economic growth will slow to 5.9% in 2023, downwardly-revised from our previous forecast of 6.2%,” the firm said.

Inflation to stay high in near term

In November, BSP estimated the Philippines’ inflation rate could peak in Q4 2022 and remain above the national government’s target range of 2% to 4% until Q2 2023. Inflation is then seen to decelerate back to within the target range by Q3 2023 and approach the low end of the target range in Q4 2023 to Q1 2024 due to negative base effects, and eventually stabilise at the midpoint of the target by Q2 2024. 

ING projected inflation rate in the Philippines to ease to 5.4% in 2023, from an estimated 5.7% in 2022, as of 9 December. The pace of price rise to slow to 3.9% in 2024, before rising a shade to 4% in 2025.

ANZ Research forecast inflation in the Philippines would average 5.8% YoY, decelerating to 4.4% and 3% in 2023 and 2024 respectively. Economist Dhiraj Nim and head of Asia research Khoon Goh said on 2 December:

Although inflation is expected to ease in Q1 2023, the balance of risks remains tilted to the upside unless existing food supply issues are resolved, and domestic demand cools further slightly to 3.1% YoY (from 3.0% YoY), the risks are viewed as broadly balanced.”

Philippine interest rate outlook for 2022 and 2023

As the Philippine inflation rate is set to remain high at least until the end of this year, which could take a toll on the country’s economic growth, what are the Philippines’ interest rate forecasts for 2022 and the Philippines’ interest rate forecast for 2023? 

ANZ Research expected BSP to hike its policy rate by 50 basis point (bp) to 5.5% on 15 December, its last rate meeting for 2022.

“We believe that the central bank will maintain a comfortable interest rate differential with the US to support the peso and limit the pass-through effect on domestic inflation, which is already running far above the tolerance limit,” Nim and Goh said.

ING predicted BSP to have a 25bp hike each in the first two quarters in 2023, lifting the rate to 6% by the second quarter of 2023 from 5.5% in the fourth quarter of 2022.

The central bank was expected to start reducing the policy rate from the third quarter of 2023 to bring the rate down to 5.25% in the first quarter of 2024. It was projected to cut the policy rate to 4.5% by the fourth quarter of 2024 and 4% by the fourth quarter of 2025.

Trading Economics expects the interest rate in the Philippines to be 5.5% by the end of the fourth quarter of 2022. In the long-term, the Philippines’ interest rate is projected to trend at around 6% in 2023 and 5.5% in 2024.

The bottom line

Analysts were of the view that the country’s central bank would continue its hawkish rate hikes at least until the first quarter of 2023 to counter soaring inflation.

Remember that analysts’ predictions can be wrong. You should always conduct your own research before trading, looking at the latest news, technical and fundamental analysis and a wide range of analysts’ commentary. Past performance does not guarantee future returns. And never trade money that you cannot afford to lose.


What is driving the inflation rate in the Philippines?

Rising food inflation is the main driver of inflation rate in the Philippines this year due to the recent spike in sugar prices.

When was the highest inflation rate in the Philippines?

According to Trading Economics, the highest interest rate in the Philippines was 31% in January 1985.

How often does inflation occur?

Inflation can occur at any time. It can happen when prices for goods and services increase due to increased costs of production.

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