The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas (BSP), voted today to leave the BSP’s policy interest rates, the overnight borrowing rate and the overnight lending rate, unchanged at 7.0 and 9.25 percent, respectively. This marks the eighth consecutive time since 12 April 2002 that the Monetary Board has opted to keep the BSP’s policy rates unchanged.
The Monetary Board expects price conditions to remain manageable over the policy horizon despite cost-side pressures. Average inflation for 2002 is likely to fall well below the Government’s target of 4.5-5.5 percent, while inflation for 2003 is expected to fall within the targeted range of 4.5-5.5 percent for the year. At the same time, there are potential upside pressures to the inflation outlook over the policy horizon emanating from supply-side factors such as the El Niño weather disturbance, the increase in oil prices and increases in power rates and water charges. However, generalized demand-side pressures on consumer prices are expected to remain quiescent given sizeable unemployment and spare capacity in manufacturing, as well as weak credit conditions.
Thus, the Monetary Board believes that the largely supply-side and transient nature of foreseeable price pressures over the policy horizon, the risks to sustained economic activity posed by uneven and tentative growth in domestic demand and the uncertainties in global economic conditions argue for continued caution in the monetary policy stance and maintaining the present interest rate environment to help support non-inflationary economic growth while guarding firmly against price pressures. The Monetary Board believes that the current monetary policy stance is appropriately supportive of the economy’s growth objective while maintaining price stability. Against a backdrop of low inflation, the low-interest rate environment will help ensure the appropriate liquidity conditions for the continued strengthening of real sector activity.
Monetary Board decisions on the BSP’s policy interest rates carefully take into account all relevant factors affecting inflation and output growth, with an eye to achieving the BSP’s primary mandate of maintaining price stability consistent with balanced and sustainable economic growth. The Monetary Board is scheduled to meet again on 21 November to reexamine the BSP’s monetary policy settings.