At its meeting today, the Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas (BSP), voted to leave the BSP’s policy interest rates unchanged at 7 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 13 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 present price conditions remain consistent with an outlook of a generally subdued inflation environment in the near term given the absence of demand-side risks to prices and the short-lived nature of foreseeable supply-side pressures. This observation is supported by the indications that (1) the risks to the inflation outlook posed by the threat of El Niño weather phenomenon appear to be weakening; (2) the surge in international oil prices observed in the previous months has reversed and this has translated into a reduction in the prices of some domestic oil products; and (3) the exchange rate has stabilized. Given these conditions, the outlook for average inflation in 2003 and 2004 is expected to be broadly in line with the government’s targets.
At the same time, the overall strength of aggregate demand remains quite moderate. Domestic demand indicators continue to show encouraging signs but no evidence as yet of a sustained pickup. Likewise, concerns over the impact of the war in Iraq combined with weak demand conditions in major economies continue to cloud the prospects for global economic recovery.
Against this backdrop, the Monetary Board believes that it would be prudent to maintain current monetary policy settings and keep policy interest rates steady. The predominant risk to the domestic macroeconomic environment at present appears to relate more to the moderate though improving pace of economic activity rather than to rising consumer prices. The stance of monetary policy will therefore continue to focus on providing a supportive environment that ensures sufficient liquidity to fuel the economy’s growth requirements. However, monetary policy will also continue to be cautious so as to guard against any potential build-up of price pressures that could dampen the present growth momentum.
The Monetary Board is scheduled to meet again to review the BSP’s monetary policy settings on 8 May 2003.