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Monetary Board Keeps Policy Rates Steady, Calibrates Exit Process


At its meeting today, the Monetary Board decided to maintain the BSP’s key policy interest rates 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. 

The Monetary Board’s decision was based on the latest BSP baseline projections, which show that while inflation forecasts have somewhat risen, the inflation path remains within the target for 2010 and 2011. The Board noted that the second-round effects of supply-side pressures, notably from higher energy prices, are manageable at the moment, and inflation expectations are well-contained.  In addition, while the global recovery is proceeding faster than expected, world economic activity remains dependent on macroeconomic stimulus policies, and therefore the self-sustaining nature of the global expansion remains to be seen. Current policy settings therefore remain appropriate. 

The Monetary Board also noted that the BSP’s disengagement from crisis intervention measures should continue as economic conditions steadily show signs of improvement and as financial markets have remained stable. In the light of favorable credit and liquidity conditions, and to reduce potential inflationary risks, the Monetary Board decided to further reduce the peso rediscounting budget from P40 billion to the pre-crisis level of P20 billion, effective on 3 May 2010. 

At the same time, the Monetary Board observed that the balance of risks to future inflation is tilted to the upside because of supply-side factors. With growth expected to improve over the policy horizon and inflows from abroad anticipated to strengthen, monetary authorities resolve to remain vigilant against inflation pressures and are prepared to take timely and preemptive monetary policy actions to safeguard price stability.

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