In its meeting today, the Monetary Board of the Bangko Sentral ng Pilipinas decided to keep the key policy rates unchanged at 7.0 percent for the overnight borrowing or RRP rate and 9.25 percent for the overnight lending or RP rate.
Based on the analysis of data that have become available since the last meeting of the Monetary Board on monetary policy and a careful assessment of the balance of risks on inflation and inflationary expectations, Board members believe that inflation remains well-contained in the near term. This is based on expectations of favorable food supply in 2002, broad stability in the exchange rate, and the presence of spare capacity. In addition, domestic demand, though improving, remains relatively weak. The Monetary Board, however, pointed out that this benign inflation picture is not without risks. In particular, the Board recognizes the risks to inflation and inflationary expectations posed by the uncertainty over the full impact of the El Niño weather phenomenon on agricultural crop production, the ambiguity in the direction of world oil prices as well as the imminent adjustments in power and water rates and their expected second round effects on the prices of other commodities as well as on wages.
In line with the forward-looking orientation of monetary policy, the Monetary Board underscored the need for a cautious monetary policy setting. The Monetary Board believes that the presence of downside risks to future inflation and inflationary expectations amid the lack of buoyancy in domestic demand present a case for navigating carefully monetary policy so as to maintain the stimulus for growth while guarding closely against inflationary threats.