Higher rates, bigger debt: why the money stock keeps growing

The Bangko Sentral raised its policy rate three times during 2026, and the Federal Reserve raised its own on 16 September. Both moves are described as tightening, yet the money stock in both economies grew faster rather than slower. This note traces what sits between a policy rate and the quantity of money.

What did the Fed decide, and what is happening here?

The FOMC raised its target range from 3.50-3.75% to 3.75-4.00% on a unanimous 12-0 vote, the first increase since 2023. The statement described a solid expansion, stable employment, and inflation still elevated. It carried no forward guidance sentence, so the path is read from the Summary of Economic Projections instead: medians of 4.1% at end-2026, 4.1% at end-2027, 3.9% at end-2028 and 3.2% in the longer run.

The Philippines runs its own policy. The BSP set the target reverse repurchase rate at 5.00% on 27 August 2026, a third consecutive increase and 75 basis points of tightening during the year.

BSP target reverse repurchase rate, 27 August 2026, third consecutive increase

It comes alongside the highest inflation rate among the markets on this site: consumer prices rose 6.19% in the twelve months to July 2026.

Did the money stock actually fall while rates rose?

It did not.

Philippine M2, twelve-month growth to July 2026, during 75 basis points of BSP increases

Series	Latest	Twelve-month change
Philippine M2	PHP 19.87 trillion (July 2026)	+9.02%
Philippine consumer prices	171.77 (2010=100, July 2026)	+6.19%
US M2	USD 23,218.0 billion (July 2026)	+5.41%
PHP per USD	61.4451 (August 2026)	+7.55%

Why does a stock of debt push the other way?

A rate rise applies two opposite forces to a money stock at the same time.

Visual guide

Why does a stock of debt push the other way?

1. Restraining

   How it works

   Borrowing costs more, so less new credit is created

   Direction

   Down (−)

2. Enlarging

   How it works

   Interest owed on existing debt grows

   Direction

   Up (+)

Force	How it works	Direction
Restraining	Borrowing costs more, so less new credit is created	Down (−)
Enlarging	Interest owed on existing debt grows	Up (+)

The second force is easy to miss because interest does not disappear. It leaves the borrower’s account and arrives in a depositor’s or a bondholder’s account. Repaying principal cancels the deposit the original loan created; paying interest is a transfer between accounts. Where the borrower is a government, the payment is a net flow out of the government and into the private sector.

In the Philippines the government side of that arithmetic is close in size to the money stock itself.

National government debt (PHP 19.39 trillion, 31 July 2026) as a share of M2 (PHP 19.87 trillion, July 2026)

Series	Amount	Reference date
National government debt	PHP 19.39 trillion	31 July 2026
M2	PHP 19.87 trillion	July 2026

If that whole balance absorbed a 0.25 percentage point increase immediately, annual interest would rise by roughly PHP 48.5 billion.

When should you not use these figures directly?

First, M2 and the debt figure are both July 2026, which is unusually well matched, but the exchange rate is August 2026. Carry the dates.

Second, do not compare the debt level with other economies. National government debt as published by the Bureau of the Treasury is defined differently from the general government measures used elsewhere.

Third, a peso that weakened 7.55% over twelve months is not the product of one decision. An interest rate gap is one input among several.

Open the past money calculator →