The Bangko Sentral ng Pilipinas has signaled that the country’s key rates and reserve requirement will remain steady when members of the Monetary Board sit down next week for the last policy-setting meeting of the year.
BSP Governor Amando Tetangco Jr. said that since October 20, when the central bank decided to keep key rates on hold, there had been no developments in the domestic and international fronts that would warrant an adjustment in monetary policy.
“There has been no significant change in price and monetary policy situation, as well as in relevant indicators,” Tetangco told reporters.
During the October 20 meeting of the Monetary Board, the members did not change the policy rates and the reserve requirement, believing that the economy would benefit greatly from the current levels.
Economic growth slowed down to 4 percent in the first half, from over 8 percent in the same period last year.
According to monetary officials, the present interest rates are still appropriate to boost demand for bank loans which will, in turn, stimulate consumption and investments.
The central bank’s policy rates stand at 4.5 percent and 6.5 percent for overnight borrowing and lending, respectively.
The rates were raised in the first semester by a total of 50 basis points, from 4 and 6 percent. But the BSP later decided to stop hiking rates, citing the need to help the economy after it felt the pinch of the global turmoil.
Officials said the rate hikes in the first semester were necessary to temper inflation.
Higher interest rates temper growth in demand, thus slowing down inflation.
But when the financial crisis abroad started to have an impact on the Philippine economy in the first semester, the Monetary Board started to shift its focus from controlling inflation to that of boosting growth.
Also, the BSP decided to stop increasing the reserve requirement, which had been raised twice by a total of 2 percentage points earlier this year.
The reserve requirement, or the proportion of deposits that banks must keep as reserve, stands at 21 percent.
An increase in the country’s reserve requirement may counter efforts to boost growth of the economy, officials said.
Unfavorable factors abroad have dampened growth of the Philippines and other emerging markets.
The sluggish performance of the United States economy and the debt problems of Europe, both major markets of the Philippines, have taken their toll on the country’s exports.—Michelle V. Remo