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BSP Cuts Policy Rates Further by 25 Basis Points

12.13.2001

The Monetary Board decided today to reduce by another 25 basis points the Bangko Sentral’s overnight borrowing and lending rates to 7.75 percent and 10.0 percent, respectively, effective Friday, 14 December 2001.  This brings the cumulative reduction in the Bangko Sentral’s policy rates to 725 basis points since December last year.  The policy overnight borrowing rate is the lowest since 1 September 1995.

The benign inflation outlook—in part due to the broad stability in the exchange rate and lower oil prices—underpins the Board’s decision to ease monetary policy.  Moreover, the latest 25-basis point cut in the target Federal Funds rate of the U.S. has provided monetary authorities with further leeway to reduce policy rates with expected minimal impact on the peso. The cut in the policy rates is expected to influence a further decline in market interest rates, which could help boost domestic demand and support the economy’s growth path. It is also expected to have the corollary benefit of contributing to a reduction in the debt service burden of the corporate sector and the National Government (NG).

The Board also approved the change in the rates under the tiering scheme on the BSP’s overnight RRP window to reflect the new overnight borrowing rate as follows: 7.75 percent for placements of up to P5 billion, 5.75 percent for the next P5 billion, and 3.75 percent for placements in excess of P10 billion.

Going forward, the Bangko Sentral will continue to closely monitor factors that could lead to a resurgence in inflation to ensure that price stability consistent with the economy’s growth objective is achieved.

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