BSP keeps key policy rates steady

The Bangko Sentral ng Pilipinas (BSP) kept key interest rates on hold during a policy meeting on Thursday as monetary officials chose to exercise caution amid an uncertain global economy.

BSP Governor Amando M. Tetangco Jr. said while price pressures remained benign, the Monetary Board (MB) chose to stay conservative in light of unstable financial market conditions.

“Financial market volatility persists, owing to concerns over the timing of the tapering of the monetary stimulus in advanced economies. This suggests caution in assessing the policy stance,” Tetangco said.

Overnight borrowing and lending rates were kept at record lows of 3.5 and 5.5 percent, respectively.

The interest rates for special deposit accounts (SDA) were also maintained at 2 percent across all maturities.

“The Monetary Board is of the view that prevailing monetary policy settings remain appropriate,” Tetangco explained.

The central bank chief said inflationary pressures remained subdued, despite healthy growth in bank loans and the country’s money supply.

In a separate statement Thursday, Tetangco said inflation for July would likely settle between 2.2 and 3.1 percent, coming from 2.8 percent in June.

For the whole year, the Bangko Sentral ng Pilipinas expects inflation to average at 3.3 percent, or near the low end of the target range of 3 to 5 percent.

Tetangco noted that the rate of rise in consumer prices did not accelerate significantly, even though the economy grew by a healthy pace.

It indicated that the economy has the capacity to absorb the additional money being pumped into the country’s financial system, he explained.

The Philippine economy grew by 7.8 percent in the first quarter, making it Asia’s best performer.

BSP Deputy Governor Diwa C. Guinigundo said leading indicators watched by both the central bank and various statistics offices of the government showed that, for the rest of the year, economic growth would remain robust.

Higher fuel prices have also been offset by recent reduction in water rates by Metro Manila’s concessionaires, the BSP said.

Tetangco said external inflation pressures also remain benign at the moment.

“Global economic prospects are likely to stay subdued going forward, thus tempering upward pressures on commodity prices,” he said.

However, the BSP warned that volatility in the financial markets could result in a weaker peso, which would make imports more expensive for consumers.

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