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BSP Maintains Key Policy Rates

01.12.2006

At its meeting today, the Monetary Board maintained the BSP’s key policy interest rates at 7.5 percent for the overnight borrowing or reverse repurchase (RRP) rate and 9.75 percent for the overnight lending or repurchase (RP) rate.

The Monetary Board noted that recent evidence of easing inflation pressures supports an unchanged policy setting. Easing energy prices, favorable food prices and the appreciation of the peso should help keep price pressures at bay in the near term.  In addition, demand-side pressures on consumer prices appear to be still limited given the sustained deceleration in core inflation, indications of easing money growth and the slowdown in aggregate demand, particularly consumer spending.  There has also been relatively little indication thus far of second-round effects from ongoing supply shocks.     

Nonetheless, there continue to be a number of risks to the inflation outlook.  World energy prices continue to be the dominant source of uncertainty in the outlook for inflation given limited global surplus production capacity.  Moreover, there is still the risk of second-round effects given the expected price pressures in the pipeline.  Potential shifts in the public’s inflation expectations likewise continue to be a policy concern.  

The Monetary Board reiterates that it remains committed to the BSP’s price stability objectives and will continue to closely monitor the evolving conditions for consumer prices, aggregate demand, domestic liquidity and other factors in order to determine the appropriate stance of monetary policy and undertake action if necessary.  Monetary authorities also continue to support the National Government’s use of non-monetary measures to address supply-side risks, particularly those related to food supply and the effects of high oil prices, and will thus continue to strengthen representation and coordination with the relevant government agencies.

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