At its meeting today, the Monetary Board decided to reduce the BSP's key policy interest rates by 25 basis points to 4.0 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6.0 percent for the overnight lending or repurchase (RP) facility, effective immediately. The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also reduced accordingly. This rate cut follows the 25-basis-points reduction in policy rates that was implemented in January of this year.
The Monetary Board’s decision was based on its assessment that the inflation outlook remains within the target range, with well-anchored inflation expectations. Latest baseline forecasts have continued to indicate that inflation is likely to settle within the lower half of the 3-5 percent target range in 2012 and 2013. The risks to the inflation outlook also appear to be broadly balanced, with the subdued pace of global economic activity expected to temper the rise in commodity prices. Meanwhile, the upside risks to inflation stem mainly from volatility to oil prices due to geopolitical tensions in the Middle East and from the impact of strong capital inflows on domestic liquidity growth.
At the same time, the Monetary Board noted that domestic demand has continued to grow at a modest pace, reflecting mainly the impact of weaker external demand. Global economic conditions are expected to stay subdued as fiscal and banking sector headwinds in advanced economies affect global output growth and as market confidence remains fragile. Given these considerations, the Monetary Board is of the view that the benign inflation outlook has allowed further scope for a measured reduction in policy rates to support economic activity and reinforce confidence.
Going forward, the BSP will continue to monitor emerging demand and price developments to ensure that monetary policy settings remain consistent with price stability while being supportive of non-inflationary economic growth.