MANILA, Philippines -- The Bangko Sentral ng Pilipinas is poised to keep its key policy rates at historic lows until the end of 2010, saying there was no compelling reason at the moment to reverse the existing interest-rate environment.
?It is possible that we [BSP] keep the rates steady for the year provided there are no major events that can lead to a significant change in the inflation outlook,? BSP Governor Amando Tetangco Jr. said, noting that latest estimates showed that inflation would be benign over the short to medium term.
The BSP?s overnight borrowing and lending rates stand at record lows of 4 and 6 percent, respectively, and have stayed at these levels since July 2009.
The rates, which were a result of a series of rate cuts from December 2008 to July 2009, were meant to help stimulate the Philippine economy given a global recession.
Monetary officials said the low interest-rate setting helped the country avoid a sharp downturn last year even if other countries plunged into a recession. The central bank said low interest rates encouraged borrowings, which supported consumption and investments.
The economy grew 1.1 percent in 2009. Growth has accelerated sharply this year, with the economy growing 7.9 percent in the second quarter.
The rebound this year has prompted suggestions for the BSP to consider raising its key policy rates. Economists said keeping rates too low for too long could lead to worrisome inflation levels.
However, Tetangco said the inflation outlook remained favorable and there would be no need to worry about the impact of sustaining the low interest rate environment longer than initially planned.
Latest estimates by the BSP showed that inflation would likely average at 4 percent in 2010 and 3.25 percent in 2011. These are well within the official targets of 3.5 to 5.5 percent for this year, and 3 to 5 percent for next year.
The BSP has cited the growth in the economy?s productive capacity as a probable reason for the unusual combination of an accelerated growth of the economy and benign inflation.
With the expansion of production capacity, the resulting increase in supply offset the increase in demand brought about by rising incomes. As such, consumer prices did not rise substantially, the BSP said.
While central banks of other countries have raised their key policy rates, the BSP said it did not have to follow given the peculiar inflation environment in the Philippines.