MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) on Thursday, September 22, raised interest rates by 50 basis points, as inflation is seen to rise higher than previously expected.

This brings the key policy rate to 4.25%, in line with analysts’ expectations, following the United States Federal Reserve’s aggressive hike of 75 basis points. The Fed reiterated that it may raise rates even more.

The hike comes as the Philippine peso hit the P58 level against the dollar, the lowest ever.

Average inflation for 2022 is still projected to breach the upper end of the 2%-4% target range at 5.6%. The forecast for 2023 has also increased slightly to 4.1%, while the forecast for 2024 eased to 3%.

“The risks to the inflation outlook remain tilted toward the upside until 2023 and broadly balanced in 2024. Price pressures may continue to emanate from the potential impact of higher global non-oil prices, pending petitions for further transport fare hikes, the impact of weather disturbances on prices of food items, as well as the sharp increase in the price of sugar,” the BSP said.

How it affects you

Central banks raise interest rates to curb inflation. Doing so would discourage companies and consumers from spending, and in theory, bring prices down.

Here’s how that will impact your money:

Credit cards – A higher interest rate set by the BSP means higher interest you need to pay for outstanding debt of credit cards not paid off by the due date.

Auto and housing loans – Current rate hikes don’t affect your auto and housing loans if these loans are on a fixed-rate basis. But new loans or loans with variable-rate financing will be more expensive.

Savings – Interest rate hikes encourage people to save, but it will take time for banks to implement higher deposit rates. It is best to check with your bank if it has increased deposit rates. Higher inflation, however, cancels out this benefit.