BSP keeps policy rates unchanged

The Bangko Sentral ng Pilipinas (BSP) on Thursday kept its key rates unchanged at record lows for 10 consecutive policy-setting meetings since July last year, influenced by a benign inflation outlook and despite the stronger-than-expected economic performance in the first half of the year. The central bank's Monetary Board decided to keep its overnight borrowing or reverse repurchase rate unchanged at a record low of 4 percent and its overnight lending or repurchase rate at 6 percent, BSP Governor Amando Tetangco Jr. said in a press conference. The interest rates on term reverse repurchase facility, repurchase facility, and special deposit accounts were left unchanged, the central bank chief said. "The Monetary Board's decision was based on its assessment that monetary policy settings remain appropriate, given the favorable inflation profile shown by current inflation trends, the inflation outlook, and public's expectations about inflation," he stressed. The BSP slashed its key policy rates by 200 basis points at the height of the global financial crisis in December 2008 and in July 2009, but introduced several liquidity-enhancing measures to cushion the impact of the global economic meltdown. It has kept the rates steady since July last year but has withdrawn almost all of the crisis-related measures. The policy-setting body noted the higher-than-expected real GDP growth of 7.9 percent in the second quarter and the revised first quarter real GDP growth of 7.8 percent in the first quarter of the year. Monetary authorities decided to keep the reserve requirements of banks, that the BSP lowered to 19 percent from 21 percent to release liquidity into the financial system. The reserve requirement is a measure of bank deposits and deposit substitute liabilities that banks must keep on hand or in deposits with the BSP. Deposits banks maintain with the BSP - up to 40 percent of the regular reserve requirement - are gain interest at 4 percent a year, while liquidity reserves are paid at minus half a percentage point of the rate on comparable government securities. Barclays Capital economists Prakriti Sofat said that the BSP would likely raise its key policy rates by 25 basis points in the fourth quarter on strong domestic demand. "However, the strong domestic demand momentum is likely to feed core inflationary pressures, and we believe the BSP is likely to raise its 2010 inflation forecast, which currently stands at 4 percent," Sofat said. "We maintain our view that rate normalization will begin in [the fourth quarter] with a 25-basis-point hike," she said. —VS, GMANews.TV