At its meeting today, the Monetary Board decided to keep the BSP's key policy rates at 3.5 percent for the overnight borrowing or reverse repurchase (RRP) facility and 5.5 percent for the overnight lending or repurchase (RP) facility. The interest rates on term RRPs and RPs were also kept steady. The reserve requirement ratios were left unchanged as well. At the same time, the Monetary Board decided to raise the interest rate on the Special Deposit Account (SDA) facility by 25 basis points from 2.0 percent to 2.25 percent across all tenors effective immediately.
The Monetary Board’s decision to maintain the policy rates at their current levels is based on its assessment that the future inflation path is likely to stay within target over the policy horizon. Although the latest baseline inflation forecasts have risen due to the higher inflation outturn in May and the inclusion of the potential impact of El Niño on food and utility prices, inflation is projected to settle within the upper half of the target ranges of 4±1 percent for 2014 and 3±1 percent for 2015. Moreover, inflation expectations continue to be within the target bands for 2014 and 2015. Meanwhile, the balance of risks to the inflation outlook remains tilted toward the upside, with potential price pressures emanating from the possible uptick in food prices as a result of changing weather conditions, and pending petitions for adjustments in power rates.
At the same time, the Monetary Board decided to adjust the SDA rate to counter risks to price and financial stability that could emanate from ample liquidity, noting that a modest upward adjustment in interest rates would be prudent amid robust credit growth. The Monetary Board believes that solid domestic growth prospects allow some scope for a measured adjustment in the SDA rate to ensure that monetary and credit conditions continue to be appropriate.
Going forward, the BSP will remain vigilant against a potential build-up in inflation expectations and financial imbalances. The BSP stands ready to undertake further policy actions as necessary to safeguard price and financial stability.