At its meeting today, the Monetary Board decided to keep the overnight policy rates steady. At the same time, the reserve requirement ratios were kept unchanged.
The Monetary Board's decision is based on its assessment that current monetary policy settings remain appropriate given a manageable inflation environment and subdued economic outlook. Latest baseline forecasts continue to indicate that average annual inflation is likely to settle within the 3-5 percent target range for 2011-2013 while inflation expectations remain firmly anchored given the moderating commodity prices and the recent string of stable inflation rates. The growth of domestic output has moderated in the first half of 2011 as external demand weakened and public spending was below target.
The Monetary Board is of the view that the risks to the inflation outlook may be receding as global inflationary pressures are expected to ease with the slowdown in the recovery of advanced economies. Food prices have also remained tame with favorable supply conditions in both domestic and international markets. The abating price pressures give monetary authorities sufficient room to keep policy rates on hold. A pause in the policy stance allows for careful assessment of inflation risks amid signs of sluggish global economic growth. The Monetary Board believes that the current monetary policy stance remains in line with the need to safeguard price stability and support sustained economic growth.
The Monetary Board also noted that liquidity expansion and bank credit activity continue to grow at a strong pace, which could stoke inflationary pressures going forward. The BSP therefore remains watchful over emerging conditions to ensure that the monetary policy stance is appropriate.