Philippine central bank surprises with a big rate rise as Korea and Indonesia hold

The Philippine central bank raised interest rates by more than expected on Thursday¹. It warned that inflation would accelerate further as renewed Middle East tensions pushed up energy prices¹.

The Bank of Korea held its policy rate steady at 3% after two straight increases, as expected^2,3. It paused its tightening as inflation eased but remained above target², and signalled that tightening would continue³. Shin Hyun-song said the rate freeze was the fruit of preemptive action and that monetary tightening would continue⁴.

Bank Indonesia held its benchmark interest rate steady on Wednesday but raised its deposit facility rate⁷. The decision came as the threat of a downgrade by index provider MSCI weighed on Indonesian markets^7,8.

Why it matters to investors

The three decisions show how unevenly the oil shock is landing in Asia. In the Philippines, the central bank’s own warning that inflation will accelerate further prompted a larger move than markets expected¹. In South Korea, easing inflation gave the central bank room to stop after two hikes².

Currencies are part of the calculation in Seoul. Shin explained that because the US dollar has been strong over the past few years, it is important to look at the effective exchange rate compiled by the Bank for International Settlements^3,4. The Bank of Korea’s chief said the won is weak as a stock slump cools consumption⁵. Capital Economics expects the Bank of Korea to raise rates once more this cycle⁶.

Indonesia faces pressure on its external accounts. Bank Indonesia expects the current account deficit to widen, increasing the country’s external funding needs, though ample foreign exchange reserves are seen as a cushion⁸. Analysts expect the deficit, 1% of gross domestic product in the second quarter, to widen to between 1.6% and 2.4% of GDP in 2026⁹. The rupiah faces challenges from higher oil prices and inflationary risks⁹.

What to watch

In Manila, the key question is whether energy prices keep pushing inflation up, as the central bank warned they would¹. The size of the surprise move suggests the bank is acting ahead of that risk rather than waiting for it¹.

In Seoul, the Bank of Korea has signalled that its pause is not the end of tightening^3,4. The weak won and slower consumption will shape whether it delivers the one further rise Capital Economics expects^5,6.

In Jakarta, investors will watch the MSCI review and the size of the current account gap^7,8. Bank Indonesia combined a steady benchmark with a higher deposit facility rate⁷, while the rupiah faces higher oil prices and inflationary risks⁹.