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Bangko Sentral Cuts Policy Rates Anew by 50 Basis Points

11.08.2001

The Monetary Board decided today to reduce by 50 basis points the Bangko Sentral’s overnight borrowing and lending rates to 8.25 percent and 10.5 percent, respectively, effective Friday, 9 November 2001. This brings the cumulative reduction in the Bangko Sentral’s policy rates to 675 basis points since December last year.

The Board said that there is room for monetary easing as the inflation performance continues to move along the target path for 2001. Consistent with a forward-looking approach to monetary policy, the expected favorable trends in the various indicators of inflation—such as oil and food prices—also indicate reduced inflationary expectations over the near term.

Moreover, the recent cut in the US Fed target federal funds rate provided scope for additional relaxation of monetary policy in order to spur domestic demand in the face of weaker external conditions.

The Monetary Board believes that as the impact of interest rate easing works its way in the real sector, increased consumer spending and investments would boost market confidence, which would be positive for the peso exchange rate.

In addition, the Monetary Board also approved the restoration of the tiering system on banks’ overnight RRP placements with the BSP as follows: 8.25 percent for placements of up to P5 billion, 6.75 percent for the next P5 billion, and 5.25 percent for placements in excess of P10 billion. This measure is expected to induce banks to channel the additional funds to other areas like government securities and loans to the various productive sectors of the economy.

The Bangko Sentral will continue to monitor the evolving market conditions in order to ensure that the monetary setting is supportive of the economy’s inflation and growth objectives.

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