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BSP Maintains Key Policy Rates

12.14.2006

At its meeting today, the Monetary Board decided to keep the BSP’s key policy interest rates steady at 7.5 percent for the overnight borrowing or reverse repurchase (RRP) rate and 9.75 percent for the overnight lending or repurchase (RP) rate.  The tiering scheme on bank placements with the BSP was also maintained.

In its assessment of the monetary policy stance, the Monetary Board agreed that the sum of new information since the previous policy meeting argues for keeping policy settings unchanged.  Latest inflation readings remain in line with the forecast path, given easing oil prices and a firm peso.  Equally important, inflation expectations also remain well-anchored.

The Monetary Board also believes that the policy action in Novembershould be given time to work its way through the various channels of monetary policy, including the credit channel.

Despite recent benign readings in inflation, the Monetary Board noted that there continue to be upside risks to future inflation.  Domestic power costs could be adjusted upward in 2007, while food prices may come under pressure if the mild El Niño dry spell becomes prolonged.  The outlook for international crude oil prices also remains vulnerable to geopolitical disruptions.  At the same time,continued strong foreign inflows could imply added potential inflation pressures from surges in liquidity growth that, if sustained, could have adverse implications for inflation over the medium term. 

The Monetary Board remains vigilant against potential shifts in the public’s inflation expectations, well aware that safeguarding price stability is critical to sustaining strong economic growth.

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