At its meeting today, the Monetary Board decided to keep the BSP's key policy 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 maintained accordingly. The reserve requirement ratios were kept steady as well.
The Monetary Board’s assessment of a favorable inflation environment formed the primary basis for the latest monetary policy decision. Latest baseline forecasts continue to indicate that inflation will likely settle near the lower half of the 3-5 percent target range in 2012 and 2013, while inflation expectations have remained well anchored. The Monetary Board also noted that while global economic conditions remain fragile, prospects for overall domestic economic activity are gradually strengthening.
At the same time, the Monetary Board noted that the balance of risks to the inflation outlook now leans slightly toward the upside as oil prices have remained elevated and at risk from ongoing tensions in the Middle East as well as strong demand from emerging economies. Potential pass-through from higher energy prices to other prices also constitutes another source of upside inflation risk. Other upside risks relate to the impact of sustained foreign exchange inflows on domestic liquidity. Meanwhile, the weak global economy and the stable peso could provide a moderating effect on inflation. The uncertainty in the factors affecting the outlook for inflation therefore suggests a need for a pause in monetary policy adjustment. A prudent pause allows policymakers to better assess how the upside and downside risks to inflation will play out and enables the cumulative 50-basis-point reduction in policy rates earlier in the year to continue to work its way through the economy.
Going forward, the BSP will continue to pay close attention to the outlook for inflation and growth to ensure that monetary policy settings remain consistent with price stability while being supportive of non-inflationary economic growth.