BSP decides to keep interest rates steady
CITING a favorable inflation prospects ahead, the Bangko Sentral ng Pilpinas (BSP) kept its interest rates steady, but raised the bank’s required reserve for the second time to dampen liquidity from the system.
In a briefing, Juan de Zuñiga Jr., BSP deputy governor told reporters that the central bank’s policy-making Monetary Board decided to maintain rates at their current levels of 4.50 percent for overnight borrowing and 6.50 percent for overnight lending.
“The Monetary Board’s decision is based on its view that prevailing price and output conditions support maintaining current policy settings,” de Zuñiga said.
De Zuniga said the inflation expectations have shown some signs of leveling off.
The BSP said that latest baseline forecasts showed a lower path consistent with the 3 percent to 5 percent inflation target range for 2011 and 2012, while inflation expectations remained well contained.
The BSP,on the other hand, hiked the reserve requirement on deposits and deposit substitutes of all banks and non-banks with quasi-banking functions by another one percentage point to 21 percent to take effect on August 5.
“The Monetary Board believes that a prudent increase in the reserve requirement will help ensure that the inflation target will be met,” he added.
De Zuniga said the sustained foreign exchange inflows, driven by upbeat market sentiment over the brighter prospects for the Philippine economy, could fuel a further acceleration of domestic liquidity growth that could pose risks to future inflation.
Baseline inflation forecasts for this year and 2012 were lower from 5.06 percent to 4.7 percent and from 3.90 percent to 3.74 percent, respectively.
“The Board emphasized that the risks around the inflation forecasts remain skewed to the upside, suggesting a need for caution in the monetary policy stance. The BSP therefore remains watchful against any risks to the inflation outlook and will adjust policy and prudential settings as needed to preserve price stability and financial stability,” de Zuñiga said.
In the first six month, inflation rose to 4.7 percent, using a 2006 base year.
Source: http://manilatimes.net/index.php/business/3083-bsp-decides-to-keep-interest-rates-steady
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