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The Monetary Board Maintains Policy Rates


At its meeting today, the Monetary Board decided to keep the BSP’s key policy interest rates at 5 percent for the overnight borrowing or reverse repurchase (RRP) facility and 7 percent for the overnight lending or repurchase (RP) facility.  The interest rates on term RRPs and RPs were also left unchanged.     

In deciding to keep the BSP’s key policy rates steady, the Monetary Board noted that prevailing price and output conditions suggest that the stance of monetary policy continues to be appropriate for the present.  Depending on the movements in oil and non-oil commodity prices, inflation could settle above the 2008 inflation target range but will be within the 3.5 percent ± 1.0 percentage point target range for 2009.  The factors driving inflation have come mostly from the supply side, and the use of monetary instruments against such influences has limited effect compared with direct supply-side intervention measures. 

In its assessment, the Monetary Board observed that the balance of risks to the inflation outlook is tilted to the upside.  Core inflation has drifted upward, with the March 2008 reading at its highest level since November 2006. The pending requests for wage and transport fare adjustments could raise the upside risks to inflation coming from demand-side pressures. On the other hand, the consensus view of a prolonged slowdown in the US economy, and the resulting weaker outlook for global economic growth, could reduce demand pressures and moderate price increases in global oil and non-oil commodities.

Containing inflation is the BSP’s predominant policy objective.  It will act decisively and adjust monetary policy settings accordingly as and when second-round effects of supply shocks become evident.  The Board noted that the economy’s underlying growth momentum provides ample room for a decisive policy response by monetary authorities.      

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