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 15 months, with the rates last changed on 15 March 2002 when they were reduced by 25 basis points.
At the same time, the Monetary Board voted to restore the tiering scheme on banks’ placements with the BSP under the reverse repurchase (RRP) and special deposit accounts (SDA) windows. Banks’ placements with the BSP under the overnight RRP window, will now be subject to the following interest rates: 7 percent for the first P5 billion; 4 percent for additional amounts in excess of P5 billion but below P10 billion; and 1 percent for the amounts in excess of P10 billion. Effective tonight, 5 June 2003, the BSP will implement its tiering scheme starting with its overnight RP/RRP windows. Henceforth, all RP/RRP and SDA transactions will be subject to the tiering scheme. The restoration of the tiering scheme is expected to further enhance the liquidity situation and encourage banks to lend to the public instead of placing their excess funds with the BSP.
In assessing the inflation environment and overall macroeconomic conditions, the Monetary Board concluded that, against a backdrop of continuing mixed trends in aggregate demand conditions and receding supply-side risks, the present economic environment continues to support a benign path for future inflation. Average inflation is expected to be below the Government’s target of 4.5-5.5 percent in 2003 and well in line with the 4-5 percent target for 2004.
At the same time, despite robust consumer spending and improving manufacturing activity, the lack of a discernible momentum for domestic demand and the downside risks in the external environment continue to highlight the efficacy for a supportive monetary policy setting. Moreover, recent monetary conditions and other economic developments have provided added flexibility for the BSP to ease the monetary stance while observing caution towards potential inflationary risks. For these reasons, the Monetary Board decided to preserve the supportive stance of monetary policy by maintaining the policy rates and restoring the tiering scheme on banks’ placements with the BSP. The BSP will also keep its ears on the ground by watching for the latest moves by key central banks including the Fed and the European Central Bank.
The Monetary Board is scheduled to meet again to review the BSP’s monetary policy settings on 3 July 2003.