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 primarily by emerging risks on the inflation outlook. The uptrend in oil prices and increased signs of volatility in the foreign exchange market as well as the increase in non-food inflation indicate potential sources of inflationary pressures. The board believes that these conditions warrant a more cautious monetary policy setting. Any further cut in the BSP’s policy rates could fan inflation which could constrain the broader objective of achieving a balanced and durable economic recovery. This decision was made despite the one-quarter percentage point cut in the U.S. Federal funds rate on 27 June 2001. The rate cut—which was lower than the more aggressive 50-basis point cuts made earlier—signals that the U.S Fed is scaling back its efforts to stimulate the economy while inflationary pressures remain in check.
Meanwhile, the Board feels that it would be prudent for monetary policy to wait and see a firmer moderation in the country’s inflation outlook before effecting further adjustments on the BSP’s policy rates. Meanwhile, the BSP will continue to watch carefully the possible sources of price pressures.