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BSP Holds Key Policy Rates Steady

07.31.2003

In today’s meeting, the Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas (BSP), voted to keep the BSP’s policy interest rates at 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 31 July 2003, the rates that prevailed after the 25 basis point-reduction on 2 July 2003. The current policy rates represent the lowest levels since May 1992.

In its assessment of the outlook for inflation and the overall macroeconomic environment, the Monetary Board was of the view that the current monetary policy stance continues to be supportive of the economy’s growth path. In particular, inflation going forward is likely to remain moderate for the rest of the year and expected to fall broadly in line with the 4.0-5.0 percent average inflation target for 2004. There are no broad-based price pressures on consumer prices over the near term given the moderate aggregate demand condition. Moreover, while there are already some encouraging signs of pick-up in manufacturing activity in the US, there are still some elements of fragility in global economic recovery such as large spare capacity in the US and soft labor market conditions in other major economies which could pose downside risks to the country’s prospects for a strong recovery in external demand.

The Monetary Board also agreed that the July 27 incident affected the financial markets but the expected impact on output and inflation is minimal.

Based on these major considerations, the Monetary Board believed that the monetary policy should continue to help establish a firm footing for sustained economic growth while remaining vigilant against any possible resurgence of price pressures. Thus, the Monetary Board decided to maintain the current BSP’s overnight RRP and RP rates at 6.75 percent and 9.0 percent, respectively.

The Monetary Board is scheduled to meet again to review the BSP’s monetary policy stance on 28 August 2003.

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