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Monetary Board Keeps Policy Rates Unchanged, Reduces SDA Rates Anew


At its meeting today, the Monetary Board decided to maintain the BSP's key policy interest rate at 3.50 percent for the overnight borrowing or reverse repurchase (RRP) facility. At the same time, it kept the rate for the overnight lending or repurchase (RP) facility at 5.50 percent. It also decided to set the interest rate on RRPs at 3.50 percent for all tenors. Following its previous decision to rationalize the Special Deposit Account (SDA) facility in January, the Monetary Board further reduced the interest rates on the SDA facility by 50 basis points to 2.50 percent across all tenors effective immediately. Meanwhile, the reserve requirement ratios were kept steady.

The Monetary Board’s decision to maintain the policy interest rates at their current levels is based on its assessment that the inflation environment over the policy horizon is likely to remain manageable.  Inflation expectations also continue to be firmly anchored.  Furthermore, the risks to the inflation outlook are evenly balanced. Although global economic activity has gained traction, lingering fiscal and financial market stresses in the advanced economies continue to dampen the broad outlook, thereby mitigating upward pressures on commodity prices. Meanwhile, pending domestic power rate adjustments and potentially stronger domestic liquidity growth due to expectations of further capital inflows pose upside risks to the inflation outlook. Latest baseline forecasts have risen slightly due to the higher inflation outturns in recent months but continue to track the lower half of the 4 ± 1 percent target range for 2013 and 2014.

The reduction in the SDA rate is consistent with the BSP’s continuing efforts to fine-tune the operation of its monetary policy tools. The benign inflation outlook and improving growth prospects provide room for the reduction in the SDA rate.

Going forward, the BSP will continue to monitor emerging price and output conditions to maintain the consistency of the monetary policy stance with the price stability objective while being supportive of economic growth. The BSP also stands ready to employ macroprudential measures as necessary to pre-emptively address any potential misalignments in asset prices.

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