The Bangko Sentral ng Pilipinas on Thursday kept policy rates steady, citing the need 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, key policy rates remained 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, thus fueling additional consumption and investments.
BSP Governor Amando Tetangco Jr. said the central bank could afford to maintain interest rates at relatively low levels due to favorable inflation projections.
He said that even if rates were to remain low, the additional spending that could arise as a result would not cause inflation to breach the ceiling set.
“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.
Also, BSP Deputy Governor Diwa Guinigundo said that based on the central bank’s latest estimates, inflation would likely average at 4.52 percent this year, 3.51 percent next year, and 3.12 percent in 2013.
The government’s inflation cap had been set at between 3 and 5 percent for this year and the next two.
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 admitted that the full-year target could no longer be achieved given September’s figures.
The slower-than-expected growth in the first three quarters was blamed on anemic global demand for exports due to the crisis in the euro zone and the economies woes of the United States.
The government’s lower-than-programmed expenditures also led to the poor growth figure in September.
Budget officials said expenditures did not meet the programmed expenses because of efforts to scrutinize spending proposals of line agencies with the aim of reducing corruption.
But the government still expects the economy to perform better next year as it vows to speed up public expenditures. Michelle V. Remo