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, the Monetary Board noted that the balance of risks for consumer prices has not changed significantly since the previous review of the monetary policy stance. Present cyclical conditions continue to support a moderate, on-target path for headline inflation over the policy horizon. In addition, expected cost-push risks to consumer prices do not appear to pose a major threat to the inflation objective. Average annual headline inflation for 2003 is expected to settle at around 3 percent in 2003, well below the Government’s target of 4.5-5.5 percent for the year.
Meanwhile, the observed slowdown in money and credit demand and the restrained pace of bank lending as well as the generally uneven character of the trends in other economic indicators tend to suggest downside risks for the overall strength of economic activity.
Taken together, expectations of on-target inflation and subdued domestic demand conditions over the next several quarters support the argument for maintaining the policy stimulus without any undue risk of demand-pull inflation. Consequently, the Monetary Board is of the view that the decision to maintain the monetary policy stance would continue to ensure adequate liquidity to support growth in domestic demand while helping guard against potential price risks. Prospective decisions on the monetary policy stance will continue to preserve a careful balance between caution and the need to ensure that the macroeconomic environment remains conducive to credit demand and investment activity.
The Monetary Board is scheduled to meet again to review the BSP’s monetary policy stance on 15 January 2004.