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Bangko Sentral Stays its Hand on Key Policy Rates

02.12.2003

At its meeting today, the Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas (BSP), decided to leave 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 have been on hold for the past 11 months, with the rates last changed on 15 March 2002 when they were reduced by 25 basis points.

In assessing the inflation environment and overall macroeconomic conditions, members of the Monetary Board noted that the inflation path remained consistent with the outlook of a generally subdued inflation environment in the near term. The Monetary Board also noted that the favorable inflation outlook and the marked downtrend in domestic interest rates have contributed to the growth of overall economic activity in 2002 and helped boost domestic demand in the fourth quarter of 2002, with consumer spending expanding briskly during the quarter. In addition, bank lending activity has continued to recover, with the outstanding loans of commercial banks (KBs) growing steadily for the fourth straight month by 2.4 percent year-on-year as of end-December 2002.

At the same time, however, there continue to be potential cost-push pressures on inflation arising from the likely impact of the El Niño weather disturbance on the prices of agricultural products, the expected rise in oil prices due to escalating tensions in the Middle East, and the possible increases in electricity and water rates. In addition, the prospects for the sustained growth of the domestic economy going forward are clouded by the risk of a slower-than-expected global economic recovery and uncertainties emanating from geopolitical events.

Against this backdrop, the Monetary Board believes that it would be prudent to maintain current monetary policy settings and keep policy interest rates steady, while continuing to closely monitor any evidence that points to pressures on inflation.

The Monetary Board is scheduled to meet again to review the BSP’s monetary policy settings on 13 March 2003.

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