The Monetary Board decided today to implement a further cut of 50 basis points in both the overnight RRP and RP rates to 12.0 percent and 14.25 percent, respectively, effective Monday, 29 January 2001. This marks the third policy rate cut since the beginning of this year and brings the reduction in the BSP’s policy rates to a cumulative total of 300 basis points since 4 December 2000.
The tiering system shall continue to apply for overnight placements of banks under the RRP window as follows: 12.0 percent for placements of up to P5 billion, 10.5 percent for the next P5 billion and 9.0 percent for placements in excess of P10 billion.
Leading indicators show that the inflation path in the second half of 2001 may be moderated by the downtrend in world crude oil prices and better prospects for stable food prices. The record-high palay harvest of 12.4 million metric tons in 2000 and the forecast of a milder impact of the el niño weather disturbance bolster expectations of benign inflationary pressures in the second half of the year. Improvements in supply conditions along with prospects for continued stability in the foreign exchange market provide scope for further easing of the monetary policy stance. In addition, the reduction of the political risk premium signals a favorable outlook for the country’s financial markets and impacts positively on the prospects for growth and inflation. Moreover, the easing bias of the US Fed also provides greater latitude for a further cut in the BSP’s policy rates. However, this has to be considered alongside the need to maintain an appropriate interest rate differential to encourage investors to keep peso-denominated assets.
The Bangko Sentral will continue to monitor closely all relevant economic indicators in order to be alert against potential build-up of inflationary pressures.