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BSP Holds Key Policy Rates Steady

07.28.2005

At its meeting today, the Monetary Board decided to maintain the BSP’s key policy interest rates steady at 7.0 percent for the overnight borrowing or reverse repurchase (RRP) rate and 9.25 percent for the overnight lending or repurchase (RP) rate. 

In its assessment of the outlook for inflation and macroeconomic conditions, the Monetary Board noted that inflation continues to be caused mainly by oil prices as well as the recent adjustments in transport fares and wages. Meanwhile, demand conditions are characterized by moderate  economic growth due to a  slowdown in consumer spending in the first quarter.  

At the same time, the Monetary Board recognizes that the volatility in the foreign exchange market could affect the  inflation outlook.  Given indications of slower output performance, the monetary authorities stressed monetary policy  shall be used only to address   persistent volatility of the peso which will have  an inflation impact.  

With the earlier policy move to raise the reserve requirements to help keep liquidity in check,  the BSP  continues  to monitor  the level of money supply  to ensure  an appropriate level  of liquidity. The Monetary Board also noted the narrowing differentials between the domestic and foreign interest rates that can potentially have an effect on foreign exchange flows, exchange rate and ultimately, inflation.  Moreover,  the monetary authorities underscored their readiness to act  preemptively  to curb any possible build-up in inflation expectations. The Monetary Board also reiterated that it will continue to support the use of direct non-monetary measures that would ensure greater availability and timely distribution of basic food products to cushion pressures on consumer prices.

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