In its meeting today, the Monetary Board decided to maintain the BSP’s policy rates at 7.0 percent for the overnight borrowing rate and 9.25 percent for the overnight lending rate.
The Monetary Board’s decision to stay its hand was based on the assessment of a comprehensive set of economic information on the inflation outlook and the economy’s growth prospects. Expectations of good agricultural output, continued broad stability in the exchange rate combined with relatively soft though resilient domestic demand and the continued presence of spare capacity all point to a generally favorable inflation outlook for the rest of 2002.
At the same time, the Monetary Board noted some headwinds in price movements such as the uncertainty over the impact of the El Niño weather phenomenon on agricultural production in 2003, uptrend in world oil prices as well as possible adjustments in utility and transport charges. These could pose downside risks to future inflation and inflationary expectations. Such considerations argue for caution in monetary policy and for allowing past monetary easing measures to flow through the economy. Moreover, recognizing the lags in monetary policy, the Monetary Board noted that it would like to have a firmer indication of how its recent policy moves all play out. In this regard, the BSP will continue to monitor carefully evidence of the sustainability of the growth process while seeing to it that inflationary pressures are not stoked up.