At its meeting today, the Monetary Board decided to keep policy rates steady. At the same time, the Board decided to raise the reserve requirement on deposits and deposit substitutes of all banks and non-banks with quasi-banking functions by one percentage point effective on Friday, 24 June 2011.
In deciding to maintain policy rates, the Monetary Board noted that the latest baseline forecasts show a lower path and that inflation expectations have shown some signs of leveling off. These developments suggest that the two previous policy rate adjustments are starting to work their way through the system. Meanwhile, the Monetary Board's decision to raise the reserve requirement is a preemptive move to counter any additional inflationary pressures from excess liquidity. The Monetary Board believes that expectations of continued strong capital inflows, driven by positive market sentiment over the favorable prospects for the Philippine economy, could fuel domestic liquidity growth and contribute to inflation risks. The move to raise the reserve requirement-which will apply to regular reserves-is also part of the normalization of the liquidity-enhancing measures adopted during the global financial crisis.
The Monetary Board emphasized that risks to the inflation outlook remain, which will continue to warrant vigilance from the BSP. The BSP therefore remains prepared to implement further monetary measures as necessary to safeguard price stability.