Bangko Sentral keeps interest rates unchanged

The Bangko Sentral ng Pilipinas (BSP) on Thursday decided to keep key interest rates at record lows for the 14th consecutive policy-setting meeting since July 2009, but raised its inflation forecasts until 2012 amid soaring oil and commodity prices and higher power and water rates. BSP Gov. Amando Tetangco Jr. yesterday told reporters that the seven-man Monetary Board kept the overnight borrowing rate at a record low 4 percent and the overnight lending rate at 6 percent as current policy on interest rates is just right. The board slashed the policy rates by 200 basis points between December 2008 and July 2009 to cushion the impact of the global financial crisis on the domestic economy. "The BSP's policy rates have been kept steady since July 2009," Tetangco said. Higher inflation forecast However, the BSP raised its inflation forecast to 4.4 percent instead of 3.6 percent this year and to 3.5 percent instead of 3 percent for next year. Despite the higher inflation forecasts, the BSP chief explained that numbers fall within the 3 percent-5 percent target for the years 2011-2014. He pointed out that the policy-setting body has noted the balance of risks to the inflation outlook has tilted toward the higher end, with more pressures on prices expected in the near term. The risks could come from food supply shocks from higher global food prices, higher rice prices, weather disturbances affecting agriculture output, higher oil prices, and higher electricity rates, according to the central bank chief. Pressures from the demand side could also develop as domestic output continued to expand above historical trend, he said. However, Tetangco said a weaker global recovery could weaken external demand while a stronger peso should help temper the impact of the higher costs of merchandise imports. "While food inflation has recently risen, the Philippines has been the least affected in the region by global food price shocks, mainly due to favorable domestic supply conditions," he said. Inflation rose to a four-month high of 3.5 percent in January from 3 percent in December. Prices of goods and services averaged 3.8 percent in 2010 from 3.2 percent in 2009. — TJD/VS, GMA News