At its meeting today, the Monetary Board decided to maintain 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 decision is based on its assessment that the inflation environment remains manageable. Latest baseline forecasts continue to track the lower half of the 3-5 percent target range for 2012 and 2013, while inflation expectations remain firmly anchored. At the same time, domestic macroeconomic readings have improved significantly in the first quarter. Adequate liquidity and strong bank lending, spurred by prevailing low interest rates, should also help sustain domestic real sector activity in the months ahead.
Moreover, the Monetary Board noted that core inflation remains firm. Oil prices continue to show considerable volatility, while additional petitions for electricity rate adjustments could provide an upside influence on inflation.
At the same time, the weak global economy can contribute to moderate oil and other commodity prices. As such, inflationary pressures and the risk of second-round effects may also ease in the coming months.
On balance, therefore, the Monetary Board believes that the benign inflation outlook and robust domestic growth provide adequate room to keep policy rates unchanged, especially as the cumulative 50-basis-point reduction in policy rates and the operational adjustments in the reserve requirements earlier in the year work their way through the economy. Going forward, the BSP will continue to monitor emerging price and output conditions to ensure that monetary policy remains in line with price stability while being supportive of economic growth.