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Bangko Sentral Holds Key Policy Rates Steady

10.23.2003

In today’s meeting, the Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas (BSP), decided to keep the BSP’s key policy rates steady 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.

Based on the review and assessment of the prevailing macroeconomic and financial conditions bearing on future inflation and economic activity, the Monetary Board believes that the near-term outlook for inflation remains subdued. Average inflation is expected to fall significantly below the 4.5-5.5 percent target for 2003 as cost-push pressures and market uncertainties have diminished significantly while demand-side influences on prices remained limited. Over the policy horizon, average inflation is expected to be broadly in line with the Government’s announced target of 4.0-5.0 percent in 2004. The prospects for a generally favorable inflation environment beyond the near-term are based on the steady-though-still modest improvements in aggregate demand, particularly credit demand, soft labor market conditions, broad stability in the foreign exchange market, as well as moderate influence of cost-push factors.

The Monetary Board held the view that the monetary policy stance should remain well balanced given the ample liquidity in the market and limited possible upward pressures on the inflation outlook. Such policy stance would cushion the negative impact on inflation expectations should there be a resurgence in price pressures arising from adverse cost-side developments and adjustments in the foreign exchange market. At the same time, the Monetary Board highlighted the need to provide adequate liquidity in the system to help ensure a steady pace of economic expansion.

The Monetary Board is scheduled to meet again to review the BSP’s monetary policy stance on 20 November 2003.

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