The Philippine central bank on Thursday decided to hike the interest rate on the overnight reverse repurchase facility by 25 basis points to 2.5 percent effective Friday to curb inflation.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the Monetary Board also decided to raise the interest rates on the overnight deposit and lending facilities to 2.0 percent and 3.0 percent, respectively.

"The Monetary Board noted that upside risks continue to dominate the inflation outlook up to 2023, with pressures emanating from the potential impact of higher global non-oil prices, the continued domestic fish supply shortage, and pending petitions for transport fare hikes due to elevated oil prices," Diokno said in a press conference.

Meanwhile, he said the impact of a weaker-than-expected global recovery and the possible reimposition of local COVID-19 pandemic restrictions amid an uptick in infections continue to be the main downside risks to the outlook.

The BSP's latest baseline forecasts have shifted higher, with average inflation projected at 5.0 percent in 2022 and 4.2 percent in 2023.

At the same time, Diokno said inflation expectations have continued to rise, adding that elevated expectations highlight the risk of further second-round effects arising from sustained price pressures.

He said the BSP is prepared to take all necessary policy action to bring inflation toward a target-consistent path over the medium term and deliver on its primary mandate of price stability.