At its meeting today, the Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas (BSP), left 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 14 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, the Monetary Board noted that the inflation environment has continued to be benign in the first four months of 2003, with subdued demand conditions and stable food prices providing a counterbalance to price pressures from movements in oil prices and adjustments in utility charges. Going forward, average inflation is expected to be below the Government’s target of 4.5-5.5 percent for 2003 and in line with the 4-5 percent target for 2004. This is based on the assessment that (1) the current state of domestic demand continues to support a benign inflation setting, and (2) supply-related influences such as the El Niño and fuel prices shown evident signs of tapering off. The subdued state of domestic demand is consistent with currently observed levels of unemployment and capacity utilization in key sectors such as manufacturing. Labor market conditions have also remained soft, with sizeable unemployment levels preventing strong calls from labor groups for wage adjustments. All of these factors suggest that broad-based price pressures are not evident.
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 key concern 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 5 June 2003.