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Monetary Board Cuts Policy Rates by 25 Basis Points

12.20.2007

The Monetary Board today decided to reduce by 25 basis points the BSP’s key policy interest rates to 5.25 percent for the overnight borrowing or reverse repurchase (RRP) facility and 7.25 percent for the overnight lending or repurchase (RP) facility.  The interest rates on term RRPs, RPs, and special deposit accounts were also reduced accordingly.  This is the third time in as many policy meetings that a reduction in policy rates was adopted.

In deciding to cut policy rates, the Monetary Board noted that the inflation outlook continues to provide scope for further monetary policy easing.  Inflation remains likely to fall well below the 4.0-5.0 percent target range in 2007 and within the 4.0 percent + 1 percentage point target in 2008.  Demand indicators have been consistent with modest demand growth, and these have exerted limited price pressures; inflation expectations remain well anchored; and liquidity growth has been decelerating for the last six months up to October, reflecting the impact of the monetary measures implemented by the BSP in May.
 
Risks to the inflation outlook consist mainly of oil and food price pressures stemming from world markets. These risks remain manageable. While the firm peso has tempered the impact of higher import costs, developments in global oil and non-oil commodity prices bear close monitoring because of possible spill-over effects on domestic prices.

The Monetary Board remains firmly committed to an environment of stable prices while being mindful of the liquidity requirements of a rapidly expanding economy.

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