BSP keeps rates steady, as expected

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) left its key policy rate unchanged at 4.5 percent yesterday, as widely expected, after data this week showed economic growth unexpectedly slowed in the third quarter.

BSP Governor Amando M. Tetangco Jr. said the central bank decided to keep its overnight borrowing rate unchanged at 4.50 percent and its overnight lending rate at 6.50 percent while the reserve requirement ratio for banks was retained at 21 percent.

“The Monetary Board took into account the data showing subdued economic activity in the third quarter, due to weather-related slowdown in the expansion of the agriculture sector, weak global economy and concerns over Europe’s sovereign and banking sectors,” Tetangco said.

The National Statistical Coordination Board (NSCB) earlier reported that the country’s gross domestic product (GDP) grew by a slower 3.2 percent in the third quarter of the year from 7.3 percent in the same quarter last year due to weak global demand and underspending by the Aquino administration.

This brought the GDP growth in the first nine months of the year to 3.6 percent, way below the revised 4.5 percent to 5.5 percent growth target set by the Cabinet-level Development Budget Coordination Committee (DBCC).

“The Monetary Board believes that, on balance, the prevailing monetary policy settings are appropriately calibrated to the outlook for inflation and domestic economic activity,” the BSP chief said.

According to Tetangco, weak global economic recovery is likely to be reflected in easing global demand and commodity price pressures.

Likewise, he pointed out that the BSP decided to keep policy rates steady as the latest baseline forecasts indicate that the annual inflation rates for 2011 to 2013 are likely to fall within the three percent to five percent range.

“The Monetary Board’s decision is based on its assessment that the inflation outlook continues to be manageable, with within-target headline inflation and well-contained inflation expectations,” Tetangco added.

He explained that the Monetary Board considers the risks surrounding the inflation outlook to remain tilted on the downside.

However, he clarified that the BSP also noted that some upside risks to inflation including increases in liquidity arising from sustained capital inflows remain.

For his part, BSP Deputy Governor Diwa Guinigundo said that monetary authorities raised its inflation forecasts for 2011 to 2013 due to the impact of the typhoons as well as the impending fare hike for the MRT and LRT system.

Guinigundo pointed out that the inflation forecast for this year has been raised to 4.52 percent instead of 4.46 percent while that of next year was increased to 3.51 percent instead of 3.05 percent.

For 2013, he said the forecast was also raised to 3.12 percent instead of 3.02 percent. –Lawrence Agcaoili (The Philippine Star)