MANILA, Philippines ? The Bangko Sentral ng Pilipinas maintained its key interest rates at historic lows during the policy-setting meeting of its Monetary Board yesterday, but withdrew so-called "crisis-relief" measures earlier implemented to help avert a recession.

In particular, the BSP did the following:

Reduced the rediscounting budget back to P40 billion from P60 billion;

Restored the eligible rediscounting papers from 90 percent to 80 percent of the borrowing bank's credit instruments; and

Brought back the non-performing loan (NPL) ratio requirement of two percentage points, from 10 percentage points, above industry average before a bank may borrowing through the rediscounting facility.

The first move means that at any given time, the outstanding amount of loans extended by the BSP under its rediscounting facility should not exceed P40 billion.

Under the rediscounting facility, the BSP extends loans to a borrowing bank at an amount discounted from the latter's collectibles. Discount loans are backed by a bank's receivables, which serve as collateral. The second move, therefore, means that for every P100 worth of receivable by a bank, it can borrow P80 from the BSP.

The third move means that in order for a bank to avail itself of a loan from the BSP's rediscounting facility, its NPL ratio should be two percentage points over industry average or less. This means that if average NPL ratio of the industry is four percent, then a borrowing bank's NPL ratio should be six percent or less.

The BSP found the moves appropriate to address the need to prevent potential inflationary pressures that may come along with the economic rebound on one hand, and to avoid choking the recovery that economists describe as nascent on the other.

The BSP's key policy rates are thus kept at 4 percent for overnight borrowing and 6 percent for overnight lending.

"The broad contours of the economy support the Monetary Board's assessment that the current policy interest rate setting remain appropriate... At the same time, the Monetary Board noted that a broad range of indicators point to increasing momentum in domestic activity," BSP Governor Amando Tetangco Jr. yesterday said in a press briefing, coming from the Monetary Board meeting.

The move of the BSP was consistent with market expectations and with what monetary officials had been signaling all along. Earlier, Tetangco and other central bank executives said the BSP was already prepared to implement an exit strategy, although raising the key policy rates will be the last of the measures lined up to realize the exit.

"Exit strategy" is the manner by which a central bank, or a national government, reverses measures implemented earlier to stimulate an economy.

Central banks across the globe are confronted with the need to adopt their own exit strategies given the consensus that the global economy will recover this year from the latest crisis, which peaked in 2009.

Their concern is that delayed withdrawal of the stimulus measures could lead to a buildup of inflationary pressures, which, if unchecked, could result in beyond-target increase in consumer prices.

However, monetary authorities also faced with the challenge of sustained economic growth that is so far deemed to be in its very early stage. Any drastic measure to cut liquidity might lead to another economic dip, they said.

In the case of the Philippines, Tetangco said, there is no immediate need to hike key policy rates of the BSP because outlook on inflation within the short term is so far estimated to fall within official targets, although the rate of increase in consumer prices has accelerated from last year.

Latest data from the National Statistics Office showed that the annual inflation rate reached 43 percent in January and 4.2 percent in February. BSP officials said inflation rates in the first two months kept the full-year target attainable.

The BSP has set a goal of limiting inflation for 2010 at a range of 3.5 to 5.5 percent.

The key policy rates of the BSP were reduced to historic lows following a series of cuts from December 2008 to July 2009. The objective was to encourage banks to reduce their own lending rates, therefore spur borrowings that should support consumption and investments.

BSP officials said the low interest-rate environment partly helped the economy avoid recession last year amid contractions suffered by neighboring and industrialized economies.

The Philippines grew by 0.9 percent last year. This was, however, slower than the 3.8 percent in 2008.

Since August 2009, however, the BSP has not touched the key policy rates in the belief these were appropriate to meet the objective of keeping a within-target inflation and to sustain growth of the economy.