BSP sees no need to adjust rates

MANILA, Philippines – Monetary authorities believe that there is no compelling need to tweak its key policy rates due to benign inflation outlook which prompted the Bangko Sentral ng Pilipinas (BSP) to slash this year and next year’s inflation forecasts.

BSP Governor Amando M. Tetangco Jr. said there is no urgency for the central bank’s Monetary Board to adjust its key policy rates given the lower price gains expected for 2010 and 2011.

“No compelling need to adjust interest rates. I think we can maintain the levels of interest rates as long as no event or development that changes the outlook, particularly the outlook on inflation,” Tetangco stressed.

The next policy-setting meeting of the Monetary Board is scheduled on Aug. 26.

During the height of the global financial crisis, the BSP slashed its key policy rates by 200 basis points between December 2008 and July 2009 but introduced several liquidity-enhancing measures to cushion the impact of the global economic meltdown. This brought the overnight borrowing rate at a record low of four percent and the overnight lending rate at six percent.

The Monetary Board has decided to keep its key rates at record low for ninth consecutive policy-setting meetings since July last year amid the uncertainty over the strength and pace of the global economic recovery as well as benign inflation outlook.

Monetary authorities have further slashed its inflation forecasts to four percent instead of 4.7 percent this year and to three percent instead of 3.6 percent next year in light of lower-than-expected inflation rates in May and June as well as the continued decline in the pump prices of petroleum products.

Latest data from the National Statistics Office (NSO) showed that inflation eased to 4.2 percent in the first half of the year from five percent in the same period last year. Inflation eased to a seven-month low of 3.9 percent in June from 4.3 percent in May.

Consumer prices are expected to stay within the 3.5 percent to 5.5 percent as well as three percent to five percent target set by monetary authorities for this year and next year.

Apart from keeping its key policy rates unchanged, the BSP also decided to put on hold further withdrawal of liquidity enhancing measures.

Monetary authorities started to phase out liquidity enhancing measures that were implemented way back in November 2008 as early as January 28 in light of the gradual global economic recovery. The Monetary Board decided to increase the rate on a short-term lending facility to four percent from 3.5 percent.

Other crisis-related measures that were tweaked included the reduction of the peso rediscounting budget to P40 billion and further to pre-crisis level of P20 billion from P60 billion, the restoration of the loan value of all eligible rediscounting papers to 80 percent from 90 percent of the borrowing bank’s credit instrument, and the restoration the non-performing loan (NPL) ratio requirement of two percentage points from 10 percentage points. –Lawrence Agcaoili (The Philippine Star)