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Monetary Board Maintains Policy Rates

09.13.2012

At its meeting today, the Monetary Board decided to maintain the BSP's key policy interest rates at 3.75 percent for the overnight borrowing or reverse repurchase (RRP) facility and   5.75 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 was based on its assessment that the inflation environment remains benign, with the risks to the inflation outlook appearing to be broadly balanced. While inflation forecasts have risen slightly due to the higher August inflation and recent increases in global oil and other commodity prices, the future inflation path remains well within the target. Meanwhile, market expectations of inflation remain at levels broadly consistent with the inflation target. Weak global economic prospects continue to temper the inflation outlook, as a possible easing in global demand could contribute to moderate international commodity prices. The sustained stability of the peso against the US dollar could also temper inflationary pressures in the future.

Nonetheless, the Monetary Board remains mindful of potential upside risks to the inflation outlook, including pending electricity rate adjustments and expectations of higher foreign prices for some grains due to adverse weather conditions abroad. Moreover, underlying demand-side pressures continue to be firm, supported by ample domestic liquidity and brisk credit activity.

On balance, therefore, the Monetary Board is of the view that prevailing monetary policy settings remain appropriate. This is supported by the manageable inflation outlook and robust domestic growth, especially as the cumulative 75-basis-point reduction in policy rates and other operational adjustments earlier in the year continue to work their way through the economy. Going forward, the BSP will continue to monitor emerging price and output conditions to ensure that the monetary policy stance remains consistent with ensuring stable prices while supporting economic growth.

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