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For 2nd straight time, BSP keeps interest rates unchanged


For the second straight policy rate-setting meeting, the Bangko Sentral ng Pilipinas (BSP) on Thursday left interest rates unchanged but decided to raise the reserve requirement anew on deposits and deposit substitutes of banks and non-banks with quasi-banking functions in a “forward-looking move to better manage liquidity." At a news conference, BSP officer-in-charge Juan de Zuniga Jr. said the BSP Monetary Board kept interest rates at 4.5 percent for the overnight borrowing rate and 6.5 percent for the overnight lending rate. The board, however, increased the reserve requirement ratio for banks to 21 percent from 20 percent effective August 5. De Zuniga said the Monetary Board made the decision to put in check the additional pressure brought about by strong foreign exchange inflows on inflation. Domestic liquidity or M3 grew eight percent to P4.261 trillion as of end-May from P3.945 trillion in the same period in 2010 as monetary authorities continued to closely monitor the amount of liquidity in the financial system, according to latest BSP data. M3 refers to the amount of money circulating in the domestic economy, while liquidity growth is one of the key vehicles to determine the BSP monetary policy. “The Monetary Board is of the view that sustained foreign exchange inflows, driven by upbeat market sentiment over brighter prospects for the Philippine economy, could fuel a further acceleration of domestic liquidity which could pose risks to future inflation," De Zuniga said. He added that the prudent increase in reserve requirement will help ensure a 3- to 5-percent inflation target. De Zuniga also explained that the policy rate-setting body considered the strong momentum of domestic economic activity, stable financial conditions, and the double-digit growth in bank lending since January. “The Monetary Board's decision is based on its view that prevailing price and output condition support maintaining current policy setting. Latest baseline forecasts showed a lower path consistent with the 3 percent to 5 percent inflation target range for 2011 and 2012 while inflation expectations remained well contained," the BSP official said. -- PE/OMG, GMA News

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