The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) decided to keep the current key policy rates on the back of benign inflation environment.
In a press briefing on Thursday, BSP Governor Amando Tetangco Jr. said that interest rates for the overnight borrowing or reverse repurchase (RRP) facility is at 3.5 percent, while overnight lending or repurchase is at 5.5 percent. The reserve requirement ratios were kept steady as well.
The interest rates on the special deposit account (SDA) facility were left unchanged at 2 percent. Since January, BSP slashed the interest rates for SDAs by a total of 150 basis points.
“Steady policy settings will also allow policymakers to better assess evolving economic risks, given the current volatilities in global financial markets,” Tetangco stated.
He also noted that firm demand and buoyant business sentiment supported domestic economic activity to grow at a solid pace.
Meanwhile, Tetangco reported that latest baseline forecasts indicate that the future inflation path continues to be broadly in line with the target range of 4 percent at plus or minus 1 percent in 2013 to 2014, and 3 also with plus or minus 1 percent for 2015, while inflation expectations remain firmly anchored.
However, the BSP governor also warned of “balance of risks” that could push the inflation rate up.
“Monetary Board noted that the balance of risks to the inflation outlook has shifted slightly toward the upside as oil prices have become more volatile amid ongoing geopolitical tensions in the Middle East,” he said.
The BSP governor also said that world economic prospects are seen to stay broadly subdued, thus tempering pressures on global commodity prices. On the other hand, Tetangco said that the robust growth of lending to the productive sectors of the economy should also support the improvement in the economy’s absorptive capacity, and help moderate price pressures.
“As expected, the BSP’s operational adjustment of its SDA facility has also contributed to the rise in domestic liquidity [M3] growth in July,” he said.
The Monetary Board recently ordered trust departments or entities to reduce their investment management accounts in the SDA facility by 30 percent by end-July, while the remaining balance should be phased out by November 30.
“As M3 growth rates are expected to decline once these adjustments have been completed, a temporary period of strong M3 growth is not expected to lead to significant inflationary pressures,” Tetangco said.
End-July domestic liquidity reached the record high P6 trillion, growing 30.1 percent year-on-year.
“Going forward, the BSP will continue to pay close attention to the outlook for prices and economic activity to ensure that monetary policy continues to safeguard non-inflationary economic growth,” he said.