MANILA - The Bangko Sentral ng Pilipinas on Thursday raised its benchmark rate by 25 basis points to 2.25 percent amid quickening inflation.

The BSP followed other central banks around the world which have also raised interest rates in an attempt to tame surging inflation as economies began to recover from pandemic-induced recessions.

The Philippine economy grew 8.3 percent in the first quarter, beating expectations. But inflation also hit 4.9 percent in April, above the government's 2 to 4 percent target range, as food and fuel prices continued to rise.

BSP Gov. Benjamin Diokno: Monetary Board decided to raise interest rates by 25bps effective Friday. This is the first rate adjustment since a 25bps cut in November 2020. This is the first rate hike since a 25bps hike in November 2018.

— Warren de Guzman (@wddeguzman) May 19, 2022

Latest BSP benchmark interest rates:

* Overnight Borrowing rate: 2.25 percent
* Overnight Deposit Rate: 1.75 percent
* Overnight Lending Rate: 2.75 percent

"The Monetary Board noted that the strong rebound in domestic economic activity and labor market conditions during the first quarter of 2022 provide scope for the BSP to continue rolling back its pandemic-induced interventions, consistent with its exit strategy from monetary accommodation," BSP Governor Benjamin Diokno said during the rate hike announcement.

"As the economic recovery continues to gain traction, the BSP shall proceed with its plans for the continued gradual withdrawal of its extraordinary liquidity interventions and the start of the normalization of its monetary policy settings," he added.

Diokno earlier said the policy normalization would be implemented in the second half of the year.

Some analysts however expected a rate hike as early as this month, with BPI lead economist Jun Neri saying the key policy rate had been "kept too low for too long."

• 'Too low for too long': Analyst backs interest rate hike in May

ING Bank senior economist Nicholas Mapa also said gradual rate hikes implemented sooner are better than an "aggressive" hike if the tightening would be further delayed.

• 'Aggressive' rate hike by BSP possible if inflation stays high: economist

The BSP has said that it expects inflation to remain elevated due to the impact of the ongoing war in Ukraine, the policy normalization by the US Federal Reserve, as well as supply chain challenges that are pushing global commodity prices upward.

Elevated inflation pressures could persist over the policy horizon, prompting the central bank to raise its inflation forecast for the year to 4.6 percent from 4.3 percent, Diokno said.

The BSP reiterated its support for the implementation of non-monetary interventions to mitigate the impact of supply-side factors, such as food supply, on inflation.

This month's adjustment was the country's first rate hike in more than 3 years and the first under Diokno.

— With reports from Jessica Fenol and Warren De Guzman, ABS-CBN News

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