At today’s meeting, the Monetary Board decided to keep the BSP’s key policy interest rates unchanged at 6.75 percent for the overnight borrowing or reverse repurchase (RRP) rate and 9.0 percent for the overnight lending or repurchase (RP) rate. The BSP’s policy rates were last adjusted on 2 July 2003 when the rates were cut by 25 basis points.
In its assessment of prevailing economic and financial conditions, the Monetary Board concluded that the current monetary policy stance remains appropriately supportive of the economy’s low-inflation growth path and the macroeconomic environment remains generally conducive to credit demand.
The Monetary Board is of the view that cost-side factors continue to represent the principal sources of risk to the inflation outlook. These factors include the recent increase in transport fares, proposed adjustments in utility charges, and the observed calls for increases in the minimum wage rate by various labor groups. Inflationary pressures resulting from cost-side factors are largely outside the influence of monetary policy, and therefore do not require action from monetary authorities. Meanwhile, the presence of inflation risks from sentiment-driven volatile movements in the nominal exchange rate implies that the policy stance should contain an element of caution, taking into consideration the potential risks to real sector activity.
At the same time, the double-digit unemployment rate, the remaining unused capacity in the manufacturing sector as well as the still modest growth in exports and bank lending over the past several quarters suggest that demand-driven pressures on consumer prices are likely to remain subdued over the near term.
In light of these conditions, the Monetary Board believes that the balance of demand- and supply-side risks to inflation points to a continued manageable environment for inflation over the policy horizon. After due consideration of prevailing inflationary risks, the Monetary Board expects average inflation for 2004 and 2005 to lie within the Government’s inflation target of 4-5 percent.
Going forward, the BSP will continue to monitor carefully all developments that may affect the assessment of risks to inflation and inflation expectations over the policy horizon. Monetary policy will continue to focus on ensuring price stability while remaining supportive of the economy’s growth objective.