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Bangko Sentral Leaves Policy Rates Unchanged

11.20.2003

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

During its review of the prevailing macroeconomic and financial conditions that bear directly on future inflation and economic activity, the Monetary Board was of the view that the prevailing balance of risks for consumer prices has not changed significantly over the past six months. The inflation environment remains very benign because of moderate demand and generally favorable supply conditions. In addition, there appear to be no major foreseeable cost-push risks to consumer prices in the near term. Going forward, therefore, economic conditions continue to suggest an on-target path for inflation for the next several quarters, and average inflation is expected to be broadly in line with the Government’s announced target of 4.0-5.0 percent in 2004.

At the same time, the Monetary Board believes that aggregate demand, while improving, is still likely to follow a subdued path over the policy horizon, based on indicators of manufacturing activity, employment, and export performance. Moreover, money and credit demand continued to be modest as bank lending, despite steady growth, has not risen as strongly as expected.

Expectations of a subdued path for both inflation and domestic demand over the next several quarters support the argument for preserving the ongoing monetary stimulus without undue risk of demand-pull inflation. The monetary policy stance of the BSP will thus continue to recognize the liquidity needs of economic growth against a backdrop of essentially benign inflation, and policymakers will continue to ensure that the macroeconomic environment remains conducive to credit demand and investment activity.

Nevertheless, market concerns over emerging domestic political developments—which could have an adverse impact on market sentiment and inflation expectations— suggest the need for caution in formulating the monetary policy stance. Prospective decisions on the monetary policy stance will, therefore, maintain a careful balance between caution and the need to support a sustainable path for economic activity.

The Monetary Board is scheduled to meet again to review the BSP’s monetary policy stance on 18 December 2003.

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