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Monetary Board Keeps Policy Rates Steady, Aligns Rediscount Rate with RRP Rate

01.28.2010

At its meeting today, the Monetary Board decided to keep the BSP’s key policy interest rates steady at 4 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6 percent for the overnight lending or repurchase (RP) facility.  The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also left unchanged. 

In its assessment of prevailing economic and financial conditions, the Monetary Board emphasized that the current monetary policy stance remains appropriate.  Latest inflation forecasts continue to fall within a target-consistent path in 2010 and 2011, with moderate demand pressures and manageable inflation expectations.  The domestic economy is expected to expand at a modest pace (2.6-3.6 percent based on official forecasts) alongside the recovery in the global economy, which is being propped up in part by monetary and fiscal stimulus measures.  The Board noted that, with the favorable inflation outlook, keeping policy rates steady would continue to support economic activity.

The Monetary Board also decided to set the peso rediscount rate equal to the overnight RRP rate effective 1 February 2010. It will be recalled that the Board approved, effective 2 March 2009, a peso rediscount rate that was 50 basis points lower than the overnight RRP rate as part of a package to liberalize banks’ access to the BSP’s rediscounting facility and ensure the orderly operation of domestic financial markets should global financial conditions worsen.  Since the risk of contagion from global financial stresses is markedly reduced, with the sustained stability in global financial markets, the need for more liberalized pricing of rediscounting loans is now less. Continued stability in liquidity conditions also warrants the reversion in pricing.  

Going forward, the BSP will continue to monitor closely all developments that could affect the assessment of risks to inflation over the policy horizon, including signs of a build-up in upward pressures on commodity prices.

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