BSP keeps policy rates steady

MANILA, Philippines—The Bangko Sentral ng Pilipinas has kept policy rates steady in the belief the relatively low interest rates are necessary to boost growth of the economy following its disappointing performance in the first three quarters.

With the decision of the central bank’s Monetary Board, the key policy rates, which influence commercial interest rates, thus remain at 4.5 percent for overnight borrowing and 6.5 percent for overnight lending.

Low interest rates help encourage individuals and corporate entities to borrow money, which can be used for additional consumption and investments.

BSP Governor Amando Tetangco Jr. said the central bank could afford to maintain interest rates at relatively low levels because inflation projections have remained favorable. He said that even if rates are low, the additional spending that might arise from this would not cause beyond-target increase in consumer prices.

“The Monetary Board believes that, on balance, the prevailing monetary policy settings are appropriately calibrated for inflation and domestic economy activity,” Tetangco said in a press conference.

BSP Deputy Governor Diwa Guinigundo said that based on the central bank’s latest estimates, inflation would likely average at 4.52 percent in 2011, 3.51 percent in 2012, and 3.12 percent in 2013.

Under the official target, inflation should be maintained between 3 and 5 percent for this year and the next two years.

The decision of the Monetary Board came after the government announced that the economy, measured in terms of gross domestic product, grew by a mere 3.2 percent in the third quarter from a year ago.

This brought the average growth for the first three quarters of the year to 3.6 percent, making the full-year growth target of between 4.5 and 5.5 percent difficult to meet. The National Economic and Development Authority has admitted that the full-year target may no longer be achieved given the performance as of the  end of September.

The slower-than-expected growth in the first three quarters was blamed on anemic global demand for exports given the crisis in the Euro zone and the economies woes of the United States.

The national government’s lower-than-programmed expenditures were also blamed for the anemic growth as of September. Budget officials said expenditures did not meet the programmed expenses, more so in the first half, because of efforts to scrutinize spending proposals of line agencies with the aim of reducing chances for corruption.

The government, nonetheless, vowed to ensure that the Philippines grow at a faster pace in 2012 by speeding up public expenditures, among other measures..

The delays in the implementation of the infrastructure projects of the government under the Public-Private Partnership (PPP) program was also criticized. Under the PPP, the government invites private firms to invest in public infrastructure projects.

The government, however, said that PPP projects would be implemented in 2012, to help accelerate the growth of the economy.