BSP keeps policy rates unchanged

The Bangko Sentral ng Pilipinas has kept its key policy rates steady, saying the stimulus created by rate reductions done earlier this year should be enough to help sustain a robust growth for the economy.

The decision, made by the central bank’s Monetary Board during its policy setting meeting on Thursday, also came with the intention to temper latest price pressures and ensure that inflation is kept within the targeted ceiling.

The key policy rates, which influence bank lending and other commercial interest rates, thus stay at 3.75 and 5.75 percent for overnight borrowing and lending, respectively.

These policy rates stand at historic lows following earlier rate cuts, totaling 75 basis points, done by the BSP during its Monetary Board meetings in January, March and July.

“On balance, the Monetary Board is of the view that prevailing monetary policy settings remain appropriate,” BSP Governor Amando Tetangco Jr. said in a press conference following the Monetary Board meeting.

The BSP believes that keeping interest rates steady is prudent at the moment given favorable growth of the economy so far this year and the need to ensure inflation is kept manageable.

Interest rate cuts done earlier this year were meant to boost growth of the economy after a sharp slowdown in 2011. Lower rates were expected to boost demand for loans, which in turn were seen supporting increased consumption and investments.

Lower rates, however, have the tendency to push inflation.

Aided by growth in bank lending, the economy grew by an above-target pace of 6.1 percent in the first semester of this year.

“The Monetary Board took the view that the economy is strong enough to not require additional stimulus [from the central bank] at this time,” BSP Deputy Governor Diwa Guinigundo said in the same press conference.

On inflation, the BSP said consumer prices are still seen staying within manageable levels. Nonetheless, recent uptick in prices makes it all the more wise to keep rates steady. Latest price pressures are led by increase in the cost of some food products due to supply disruptions caused by heavy rains.

In August, inflation accelerated to 3.8 percent from 3.2 percent in July. The government aims to keep inflation within the 3- to 5-percent band for this year and next year.