MANILA -- The Philippines' central bank on Thursday raised its key interest rate by 25 basis points, to 2.5%, as it strives to temper accelerating inflation.
The move marks the second straight increase for the benchmark, and was in line with expectations, though some observers had predicted an even bigger hike. Last month's increase, also 25 basis points, was the first since 2018.
Less than an hour after the Philippine decision, Indonesia's central bank announced that it was holding its policy rate steady at 3.5%. This was also in line with economists' predictions. A hike would have been the first since November 2018.
These and other Southeast Asian economies face intensifying price pressure.
The latest rate hike in the Philippines comes as inflation -- which has averaged 4.1% from January to May -- is expected to climb further. Central bank Gov. Benjamin Diokno said on Thursday that this was due to rising transport fares amid higher oil prices, along with a domestic fish shortage.
The Philippine central bank now expects inflation to hit 5% in 2022 and 4.2% in 2023, breaching its 2% to 4% target.
"Given these considerations, the Monetary Board believes that a follow-through increase in the policy rate enables the [central bank] to withdraw its stimulus measures while safeguarding macroeconomic stability amid rising global commodity prices and strong external headwinds to domestic economic growth," Diokno said.
Thursday's policy meeting was the last for Diokno, who has been appointed finance secretary by incoming President Ferdinand Marcos, whose administration starts on June 30.
Diokno's successor, Monetary Board member Felipe Medalla, has signaled a gradual tightening, and possibly another rate increase at the next meeting in August.
"Depending on the data, it can be four or five more. Depending on the data, some more in 2023," Medalla told local newspaper BusinessWorld last week.
Thursday's rate increase also follows the Philippine peso's decline to its weakest level in 16 years against the dollar, prompting calls for more aggressive tightening. While 16 of 22 economists polled by Reuters had predicted a 25-basis-point increase in the Philippines, six had anticipated a 50-point jump.
In Indonesia, the inflation rate rose to 3.55% in May from 3.47% the month before, its highest increase since December 2017 -- over surging prices of items including airfares, eggs, fish and shallots. Bank Indonesia Gov. Perry Warjiyo on Thursday said inflation this year is expected to slightly surpass the bank's target range of 2% to 4%, as spillover from the Ukraine war adds to price pressures.
Adding to the stress is U.S. monetary tightening. The Federal Reserve last week hiked its benchmark interest rate by 75 basis points (0.75%) to between 1.5% and 1.75%. It was the Fed's largest increase since November 1994 in a move to curb the worst inflation the U.S. has faced in 40 years. Fed Gov. Christopher Waller has called for another hike of 75 basis points next month.
Elsewhere in Southeast Asia, Bank Negara Malaysia in May increased its overnight policy rate by 25 basis points to 2.00%, catching market participants and economists off guard.
Additional reporting by Erwida Maulia in Jakarta.