Following its meeting today, the Monetary Board—the policy-making body of the Bangko Sentral ng Pilipinas (BSP)—voted to keep the BSP’s policy rates unchanged at 7.0 percent for the overnight borrowing rate and 9.25 percent for the overnight lending rate. The BSP’s policy rates were last changed on 15 March 2002, when they were reduced by 50 basis points.
Members of the Monetary Board continue to expect manageable price conditions over the policy horizon, given generally muted demand-side pressures and expected transient cost-side risks to future inflation. Average annual inflation is expected to move broadly in line with the government’s targets for 2003 and 2004. Nevertheless, the continuing presence of cost-side inflationary risks, including those coming from movements in food and oil prices as well as user charges, require a cautious monetary policy stance going forward. At the same time, the greater risk of weaker global economic activity combined with the heightened risk of geopolitical events as well as the mixed signals regarding the strength of the domestic economic recovery suggest that ensuring appropriate liquidity conditions remains central to sustained economic recovery.
In its latest assessment of the outlook for inflation and economic activity, the Monetary Board believes that the current monetary policy settings are compatible with the liquidity requirements of the economy. Encouragingly, there are indications that past monetary stimulus is showing signs of exerting its impact on the real sector of the economy. Loans outstanding of commercial banks have been on the rise in the past three months, ending with a 1.4 percent year-on-year increase in November. Although overall loan activity growth remains modest, the available evidence suggests a possible sustained rise in credit demand, which should lead to more vigorous consumption and investment activities.
In the light of such considerations, the overall assessment for future inflation and output supports continued caution on the part of monetary authorities, with greater recognition of the lags in monetary policy in order to gain a firmer indication of the extent to which monetary impulses have translated into stronger real sector activity.
The Monetary Board is scheduled to meet again to re-examine the BSP’s monetary policy settings on 13 February 2003.