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 its assessment that the prevailing inflation outlook supports keeping monetary settings unchanged. The latest BSP projections show headline inflation averaging within the target ranges for 2010 and 2011. These projections are slightly lower compared to those of the previous policy meeting as a result of lower energy prices and slower domestic liquidity growth. Liquidity growth decelerated in recent months as a result of the BSP’s withdrawal of liquidity-enhancing measures implemented at the height of the global financial crisis.
The Board concluded that the upside risks surrounding the inflation projections associated mainly with supply-side factors relating to food and energy appeared to have lessened. On the other hand, the strong pickup in exports, consumer spending, and investments shown in the first quarter GDP data, if sustained, could point to potential demand-side pressures. Nevertheless, such pressures could be tempered by weaker external demand from major trading partners, including the potential impact of fiscal concerns in the euro area.
In the face of uncertain global economic prospects and with recovery at different stages and speeds in various parts of the world, together with the flexibility provided by the inflation outlook, the Board views as prudent the move to keep policy settings unchanged. At the same time, it will continue to monitor closely the growth in liquidity as Asia’s relatively strong cyclical position could attract significant private capital inflows. The Board is prepared to recalibrate monetary policy settings when necessary to safeguard price stability.