MANILA - The Bangko Sentral ng Pilipinas (BSP) on Thursday raised the benchmark interest rate for the first time in nearly 4 years, after inflation reached its highest level in over 5 years.

The overnight borrowing rate, which banks use to price their loans, was raised by 25 basis points to 3.25 percent, the first increase since September 2014.

"The Monetary Board assessed that the balance of risks to the inflation outlook continues to lean toward the upside with price pressures emanating from possible adjustment in transport fares, utility rates and wages," said BSP Governor Nestor Espenilla Jr.

Twelve in 16 economists polled by Bloomberg had predicted a 25-point hike in the key rate.

Consumer prices rose 4.5 percent in April, accelerating for the second straight month and breaching the high end of the BSP's 2 to 4 percent target for the full year.

BSP Deputy Governor Diwa Guinigundo said supply side factors such as the spike in world oil prices as well as the higher cost of rice contributed to higher inflation.

"We assumed less than $50 a barrel for 2017 and 2018 and 2019. That was in June of last year," Guinigundo said about world oil prices.

He noted that the cost of crude oil is now hovering around $70 per barrel.

Rice prices, meanwhile, spiked after the National Food Authority announced in February that it was running low on stocks of cheap rice, Guinigundo added.

The central bank now forecasts inflation to hit 4.6 percent this year, before settling to 3.4 percent in 2019.

The rate hike would address investors' concerns that regulators were behind the curve of rising prices, said BPI Securities head of research Haj Narvaez.

"This should give investors some assurance that the BSP is also concerned about runaway inflation and they are going to take steps to prevent it from accelerating further," Narvaez told ANC.

Following the rate hike, the peso closed stronger at P51.8 to the dollar on Thursday after its P52.015 close on Wednesday.