At its meeting today, the Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas (BSP), decided to keep the BSP’s key policy interest rates unchanged at 6.75 percent for the overnight borrowing or reverse repurchase (RRP) rate and 9.0 percent for the overnight lending or repurchase (RP) rate.
During its review of the prevailing macroeconomic and financial conditions, the Monetary Board noted that the expected path for headline inflation over the BSP’s policy horizon continues to be favorable. Headline inflation is expected to see a moderate rise in 2004 to 4-5 percent, in line with government inflation targets and consistent with a projected rise in output growth, improvements in aggregate demand, and cost-push influence of planned adjustments in import tariff rates and utility charges. At the same time, the inflation outlook also considers the risks stemming from concerns over domestic political conditions, which may influence the movements of the exchange rate and financial variables with potential inflationary effects.
The Monetary Board acknowledges also that the modest pace of money and credit demand as well as the generally uneven character of the trends in other economic indicators could pose downside risks for the overall strength of economic activity. However, apart from continued spare capacity in manufacturing, the sizeable stock of non-performing loans of the banking system has contributed to the subdued lending activity. Moreover, the possibility of disorderly adjustments in the foreign exchange market due to political developments and shifts in market sentiment suggest the need for caution in deciding on the monetary policy stance. Thus, in weighing the prospective balance of risks, the Monetary Board believes that the current monetary policy stance is appropriately supportive of the economy’s growth objective. The Monetary Board is also of the view that the present monetary policy settings would continue to ensure adequate liquidity to support growth in domestic demand while helping guard against potential price risks.
The Monetary Board is scheduled to meet again to review the BSP’s monetary policy stance on 12 February 2004.