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 evaluation that monetary policy settings remain appropriate as inflation forecasts continue to be within target range of 4.5 ± 1 percent for 2010 and 4 ± 1 percent for 2011 and 2012. Inflation expectations remain within target as well. The low actual inflation of 3.5 percent in September is also consistent with the benign inflation environment.
The Monetary Board noted that the economy continues to be where the goal of safeguarding inflation is compatible with helping support economic activity, as inflation remains low even as demand has strengthened. This can be traced to a number of factors, including the recent build-up of capital, which could have added to the economy’s productive capacity, thus tempering demand-induced price pressures. Inflation expectations also continue to be well anchored, thus moderating any upward pull on prices. In addition, global economic conditions point to a tepid demand recovery, keeping a lid on imported price pressures. Sustained foreign exchange inflows, which in part reflect a broader trend in capital flows in favor of emerging market economies like the Philippines, also provide a cushion to the domestic economy from imported inflation.
Notwithstanding the benign inflation outlook, the Monetary Board will remain on the lookout for inflationary pressures going forward to ensure that monetary policy settings continue to be appropriate.