The Monetary Board decided today to maintain the Bangko Sentral’s overnight borrowing and lending rates at 9.0 percent and 11.25 percent, respectively.
The Board’s decision was guided mainly by the belief that while on balance there is scope for further monetary easing, the more prudent course of action at the present time would be to wait for further information relevant to the inflation outlook, such as the trend in energy prices, the level of liquidity in the system, and interest rate differentials. The last would depend on the outcome of the next US FED meeting, scheduled on 26 June 2001, when the FED revisits its monetary policy stance.
The Board also noted that a forward-looking monetary policy stance recognizes the lag in the impact of policy actions on the economy and thus responds more to the inflation outlook than to contemporaneous inflation. Given that the most recent policy rate cut took place on 18 May 2001, the economy would be presently feeling only the initial impact of the adjustment. The Board believes, therefore, that maintaining policy rates at the present levels will give more time for the recent rate cut to work its way on to monetary conditions.
At the same time, the Board noted the BSP’s assessment of a benign inflationary environment in the near term, with gradually declining inflation in the second half of 2001 well into the first quarter of 2002. Broadly stable price trends for the first five months of the year, coupled with the deceleration of inflation in may, bolster confidence that the full-year inflation target of 6-7 percent is achievable. These developments provide scope for further monetary easing in the future.
Thus far the BSP has trimmed policy rates by a total of 600 basis points, since December last year up to 18 May 2001, when the latest rate cut took effect.