At its meeting today, the Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas (BSP), voted to reduce the BSP’s policy interest rates by 25 basis points (a quarter of a percentage point) to 6.75 percent for the overnight borrowing or reverse repurchase (RRP) rate and 9.0 percent for the overnight lending or repurchase (RP) rate, effective 2 July 2003. The BSP’s policy rates were last changed on 15 March 2002, when they were reduced by 25 basis points. This reduction brings the BSP’s overnight RRP and RP rates to their lowest levels since May 1992, and comes at a time when interest rates are considerably more stable than they were more than a decade earlier.
Effective 2 July 2003, banks’ placements with the BSP under the overnight RRP window shall be at a base rate of 6.75 percent. Said placements shall be subject to the following tiering scheme: 6.75 percent for the first P5 billion; 3.75 percent for additional amounts in excess of P5 billion up to P10 billion; and 0.75 percent in excess of P10 billion. The tiering scheme shall be applied to the total outstanding placements of a bank, including its subsidiaries and affiliates (under the overnight and term RRPs and SDAs). Effective the same date, banks’ borrowings under the overnight RP window shall be at 9 percent. Effective 3 July 2003, banks’ transactions under the Term RRP and SDAs, as well as Term RPs, shall be adjusted accordingly.
In assessing the inflation environment and overall macroeconomic conditions, the Monetary Board concluded that future inflation is likely to continue to follow a benign path over the policy horizon. Both demand and supply factors point to subdued price conditions going forward, while the main inflationary risks that were considered in setting the targets for 2003 and 2004 have significantly diminished. Average inflation is expected to be well below the Government’s target of 4.5-5.5 percent in 2003 and fully in line with the 4-5 percent target for 2004. At the same time, various indicators of economic activity generally point to an overall weakness in aggregate demand conditions, even as credit demand continues to improve with clear evidence of ample liquidity in the financial system. In addition, the policy making body of the BSP noted the modest improvement in the global economic outlook. The Monetary Board thus believed it may be necessary to further ease current monetary policy settings and provide a signal to consumers and the business sector that monetary authorities would like to help sustain the momentum for economic activity and the observed improvement in consumer confidence. These major considerations prompted the Monetary Board to ease the stance of monetary policy of the BSP.
The Monetary Board is scheduled to meet again to reassess the BSP’s monetary policy stance on 31 July 2003.