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Monetary Board Keeps Policy Rates Steady


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 policy rates have been steady since July 2009.

The Monetary Board’s decision was based on its assessment that monetary policy settings remain appropriate, given the favorable inflation profile shown by current inflation trends, the inflation outlook, and the public’s expectations about inflation.  Latest forecasts indicate inflation averaging within the target ranges of 4.5 ± 1 percent for 2010 and 4 ± 1 percent for 2011 and 2012.  The forecasts are also supported by well-contained inflation expectations which continue to be within-target over the policy horizon.   

The Monetary Board noted the higher-than-expected real GDP growth of 7.9 percent for second quarter 2010 and the revised first quarter 2010 real GDP of 7.8 percent. The Board observed that the recent strengthening of capital formation could have added to the economy’s productive capacity, thus moderating additional price pressures.

On this basis, the Monetary Board noted that favorable inflation dynamics provide the flexibility to keep policy interest rates steady. The BSP’s efforts to promote low and stable inflation are therefore consistent with the maintenance of supportive conditions for domestic economic growth amidst lingering uncertainties surrounding global economic growth prospects. 

The Monetary Board, however, noted that there are upside risks to the inflation outlook. These include continued stronger-than-expected expansion in domestic demand and petitions for electricity rate adjustments.  Meanwhile, a downside risk to inflation involves the prospect of a slower-than-expected growth in the global economy.

Looking ahead, the Board will continue to carefully assess these risks to ensure that monetary policy settings remain well calibrated.

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