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The Philippine central bank raised its benchmark interest rate by the most since 2000 and forecast inflation will exceed last month's 14-year high on record oil and food prices.

Bangko Sentral ng Pilipinas increased the rate it pays banks for overnight deposits by 0.5 percentage point to 5.75 percent, Governor Amando Tetangco told reporters in Manila today. The decision was predicted by 4 of the 20 economists surveyed by Bloomberg News, with the rest forecasting the central bank would match last month's quarter-point increase.

Higher interest rates may support the Philippine peso after a 7.6 percent decline this year exacerbated import costs, threatening to push inflation above June's 11.4 percent pace, Bangko Sentral said. Central banks from Vietnam to Pakistan are increasing borrowing costs at the risk of stifling expansion as a U.S. slowdown hurts growth in the region.

“With the balance of risks shifting unequivocally to inflation, and inflation expectations starting to get unhinged, more policy-rate adjustments would be warranted,'' said Jun Trinidad, an economist at Citigroup Inc. in Manila. “The central bank can afford to accelerate the rate tightening.''

The currency climbed 1.1 percent to 45.03 versus the dollar as of the 4 p.m. close before the rate decision was announced, according to the Bankers Association of the Philippines. The gain was the biggest since Nov. 9.

`More Decisive'

Fuel prices have risen every week since April and rice costs have jumped 70 percent this year in the Philippines, which is the world's biggest importer of the grain and buys almost all of its oil from abroad. The government approved higher transport fares from last week to allow drivers and vehicle owners to cope with rising fuel costs.

“We needed to be more decisive than the last time,'' central bank Deputy Governor Diwa Guinigundo said today. “We need to send a signal that we don't want to see a dis-anchoring of inflation expectations.''

Bangko Sentral increased its 2008 inflation estimate to a range of 9 percent to 11 percent today, from a previous prediction of 7 percent to 9 percent, citing a weak peso and higher food, transportation and energy costs fast cash loans.

Price gains may “peak'' at 12 percent in October, and will remain in “double digits'' through to the first quarter of 2009, Guinigundo said. Inflation will probably range from 6 percent to 8 percent next year, he added.

`Tight Policy'

“We will do whatever it takes to bring inflation closer to target and promote growth,'' Guinigundo said when asked if the central bank will raise rates further. “The economy has enough buoyancy and robustness to absorb the effect of a tight policy.''

Crude reached a record $147.27 on July 11, and rice, wheat and palm oil also surged to unprecedented levels this year. That's fueled inflation across Asia and spurred public protests against price increases by Japanese fishermen, Indian truck drivers and Indonesian students. The Asian Development Bank expects inflation in the region to reach a decade-high this year.

Growth probably accelerated to 5.6 percent in the second quarter, the central bank said today. The $118 billion economy expanded 5.2 percent in the first three months, the slowest in more than a year.

The central bank's statement today “reflects its single- mindedness to temper inflation even possibly at the cost of growth,'' said Sin Beng Ong, an economist at JPMorgan Chase & Co. in Singapore. “We would not rule out other forms of policy tightening, including hikes in reserve requirements, to curb excess liquidity.''

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