The Philippine central bank (BSP) has decided to raise its key interest rates for the first time in more than one-and-a-half year.

The BSP’s Monetary Board raised by 25 basis points its overnight borrowing and lending rates to 3.75 percent and 5.75 percent, respectively, according to news reports.

BSP Governor Amando M. Tetangco Jr. was quoted as saying that the Monetary Board’s decision is a pre-emptive response to signs of inflation pressures and elevated inflation expectations.

Inflation is expected to settle at an average rate of 4.33 percent this year from a previous forecast of 4.4 percent, while the 2015 average is expected to hit 3.72 percent from an earlier projection of 3.65 percent.

The BSP set a two-to four-percent inflation target range for next year, lower than this year’s three-to five-percent goal.

For 2016, the BSP expects inflation to average 2.8 percent, near the high-end of the two to four percent target range.

According to Tetangco, the balance of risks to the inflation outlook continues to be tilted toward the upside, with price pressures emanating from higher food prices, short-term volatility in international oil prices, and pending petitions for adjustments in power rates and transport fares.

The Monetary Board believes that an increase in the BSP’s policy rates will moderate inflation pressures and arrest potential second round effects by helping anchor inflation expectations.-VNA