At its meeting today, the Monetary Board decided to maintain the overnight policy rates. The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also maintained accordingly. The reserve requirement ratios were also kept steady.
The Monetary Board’s assessment of a manageable inflation environment and subdued economic conditions continues to support current monetary policy settings. Latest average baseline forecasts show a lower inflation path, consistent with the 3-5 percent target range for 2011-2013, while inflation expectations remain well-contained, supported by easing commodity prices. Domestic economic growth has moderated as the global recovery has slowed down and as domestic public spending has been weaker than expected.
The Monetary Board also believes that the risks surrounding the inflation outlook over the policy horizon are slightly tilted to the downside. The global economic outlook has become significantly more uncertain and financial markets continue to be vulnerable to interlocking sovereign debt and banking concerns in Europe. The expected moderation in external demand, which has also contributed to the slight pullback in international commodity prices, provides scope to pause and assess the outlook for inflation and growth. The Monetary Board believes the decision to maintain the policy stance is consistent with the emerging economic developments and the inflation outlook.
While the inflation outlook is expected to be manageable, the Monetary Board continues to be mindful of any remaining upside risks to inflation, including potential increases in liquidity due to sustained capital inflows. The BSP remains watchful over evolving price and output conditions, both on the global and domestic fronts, and will ensure that monetary policy settings remain appropriate.