Monetary Board expected to keep key rates steady

The Bangko Sentral ng Pilipinas may keep interest rates steady when members of the Monetary Board sit down on September 8, as concern has shifted from rising inflationary pressures to slow growth of the economy.

BSP Deputy Governor Diwa Guinigundo said the country’s rate of growth in the second quarter was below expectations. That will be a deciding factor for the central bank’s Monetary Board when the members meet next week to decide on the key policy rates.

Inflation has become less of a problem due to the slow growth, which could pull down demand for goods and services, Guinigundo said.

“Thus, the lower growth momentum will be an important consideration during the next monetary policy meeting,” Guinigundo told reporters.

The slower growth was partly caused by the weakened economies of the United States and parts of Europe, where demand for Philippines goods came in lower. Also, the government’s restricted spending took its toll on GDP.

This year, the BSP so far raised key policy rates by a total of 50 basis points, bringing overnight borrowing and lending rates at 4.5 and 6.5 percent, respectively.

The move was meant to dampen demand for bank loans, which would normally drive up demand and thus accelerate inflation.

Also, the BSP twice raised the reserve requirement for banks this year to 21 percent.

With the hike in banks’ reserve requirement, or the proportion of deposits that banks must keep as reserves with the BSP, the amount of cash available for lending has been reduced. This will temper rise in demand and slow down inflation.