At its meeting today, the Monetary Board decided to keep the BSP's key policy rates at 3.50 percent for the overnight borrowing or reverse repurchase (RRP) facility and 5.50 percent for the overnight lending or repurchase (RP) facility. The interest rates on term RRPs and RPs as well as SDAs were also kept steady. Meanwhile, the Monetary Board decided to increase the reserve requirements for universal and commercial banks as well as thrift banks by a further one percentage point effective on 30 May 2014.
The Monetary Board’s decision is based on its assessment that current monetary policy settings continue to be appropriate given a manageable inflation environment. Latest baseline forecasts show that the future inflation path is likely to stay within the target ranges of 4±1 percent for 2014 and 3±1 percent for 2015. Inflation expectations also remain broadly aligned with the target ranges over the policy horizon.
At the same time, the Monetary Board noted that the balance of risks to the inflation outlook continues to lean toward the upside, with potential price pressures emanating from the possible uptick in food prices, as a result of expected drier weather conditions, as well as pending petitions for adjustments in transport fares and power rates. The adjustments in the reserve requirements are expected to help mitigate potential risks to financial stability that could arise from the strong growth in domestic liquidity. The Monetary Board believes that solid domestic economic activity provides room for the hike in the reserve requirements.
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 and financial stability. The BSP also remains prepared to implement policy actions as needed to prevent a potential build-up in inflation expectations and financial imbalances.