Bangko Sentral keeps interest rates steady

The Bangko Sentral ng Pilipinas on Thursday maintained its key policy rates and the reserve requirement on banks, agreeing with the consensus that any measure that would tighten liquidity could cause a further drag on the economy, which has slowed down in the first half.

With the decision, the BSP’s policy rates, which influence the cost of commercial borrowings, stay at 4.5 and 6.5 percent for overnight borrowing and lending.

The reserve requirement, the proportion of deposits that banks must keep with the BSP as reserves, is kept at 21 percent.

Increases in interest rates and the reserve requirement implemented by the BSP in the policy-setting meetings earlier this year were aimed at helping control inflation.

However, the BSP said those measures were no longer necessary as inflationary pressures have eased. It added that liquidity should actually be kept at healthy levels so that the economy could recover from the slowdown in the first semester.

The economy grew 4 percent in the first half, a sharp deceleration from the 8-percent expansion in the same period last year. This prompted the government to cut its growth target for this year from a range of 5 to 6 percent to a range of 4.5 to 5.5 percent.

The slowdown was blamed partly on the government’s underspending and the ill-effects of the anemic global economy.

“The Monetary Board’s assessment of a manageable inflation environment and subdued economic conditions continues to support current monetary policy settings,” BSP Governor Amando Tetangco Jr. said in a briefing immediately after the policy meeting, which is held every six weeks.

“The Monetary Board also believes that the risks surrounding the inflation outlook over the policy horizon [about a year after a policy decision is made] are slightly tilted to the downside [deceleration],” Tetangco said.

BSP Deputy Governor Diwa Guinigundo said in the same briefing that the BSP’s latest inflation forecasts have become more favorable. The government wants to limit inflation over the next three years to 3-5 percent.

For this year, the BSP expects inflation to average 4.46 percent. For 2012, latest estimates showed that it would average 3.05 percent, better than the forecast of 3.4 percent made six weeks ago. For 2013, the BSP now sees inflation settling at 3 percent compared with the previous estimate of 3.23 percent.—Michelle V. Remo