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Monetary Board Cuts Policy Rates Further by 25 Basis Points


At its meeting today, the Monetary Board decided to reduce the BSP’s key policy interest rates by another 25 basis points to 4.25 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6.25 percent for the overnight lending or repurchase (RP) facility, effective immediately.  This is the fifth rate cut since December 2008, and represents a cumulative reduction of 175 basis points in the BSP’s key policy rates.  This RRP rate is the lowest since 15 May 1992.  The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also reduced accordingly. 

The Monetary Board decided to further cut policy rates based on the latest baseline forecasts which indicated that average inflation is expected to remain within the target ranges in 2009 and 2010.  In addition, the Monetary Board considered that, on balance, the downside risks to the inflation outlook continue to dominate as the decline in domestic and global demand has dampened inflationary pressures.  Inflation expectations also remain well anchored.  Meanwhile, the rebound in global oil prices and volatility in the foreign exchange market are possible sources of upside risk to future inflation.

The Board observed that while there are encouraging signs that the global slowdown may be bottoming out, it is too early to conclude that global economic conditions are clearly moving towards normalcy. There are still large imbalances in the global financial markets which could prolong the adjustment process.  The Board also noted the lower-than-expected GDP growth of 0.4 percent for the first quarter of 2009. In this connection, the decision to lower policy rates could provide additional boost to spending and investment in the economy and support market confidence.

The BSP is prepared to move quickly to address potential risks to price stability while continuing to support domestic activity consistent with a non-inflationary path.

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