The Bangko Sentral ng Pilipinas (BSP) maintained all its policy settings yesterday, saying that its inflation outlook remained broadly benign despite the volatility in the market.
The Monetary Board (MB) said in a statement that it considered the benign inflation outlook and noted that the balance of risks to future inflation remained “essentially unchanged.”
BSP Governor Amando M. Tetangco Jr. said the MB discussed the recent turmoil in the global financial markets and noted that this would have a limited impact on the domestic financial system.
“Given the policy moves implemented in May and July, the MB decided to keep policy settings steady to give more time for the recent measures to work their way through the system,” Tetangco said.
According to Tetangco, the growth in domestic liquidity has been tempered, rainfall conditions have normalized and the approved wage hike in the capital region is not expected to generate additional inflationary pressures.
“At the same time, demand pressures continue to be limited although it is on a broadly strengthening trend,” he said. “The relatively firm peso also serves to temper price pressures.”
The decision to maintain all its policy settings meant that the BSP’s policy rates would stay at a uniform rate of six percent for the overnight borrowing or reverse repurchase (RRP) rate and eight percent for the overnight lending or repurchase (RP) rate.
The BSP has been under pressure to cut its policy rates in the wake of the decision of the US Federal Reserve Board to cut its rates by 50 basis points to release liquidity into the US market.
The BSP last touched its headline policy rates in October 2005 when the rates were increased to 7.5 percent for overnight borrowing and 9.7 percent for overnight lending.
The tiered rates, on the other hand, were introduced in November last year, supposedly to force banks to take their funds out of the central bank and lend them to borrowers.
The tiers were removed in July which meant that the adjustment in headline policy rates applied to placements in the special deposit account (SDA) facility of the BSP which he said would remain open to trust entities.
Tetangco expressed optimism that once the external factors settled down and markets refocus on economic fundamentals, the effect on the Philippine market would be ultimately positive.
“We should see a positive effect on our own market given that the Philippines continue to have sound fundamentals,” Tetangco said.