Monetary Board keeps rates steady

At its meeting on December 29, 2010, the Monetary Board decided to maintain the BSP’s key policy interest rates at 4 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6 percent for the overnight lending or repurchase (RP) facility. The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also left unchanged. The BSP’s policy rates have been kept steady since July 2009.

The Monetary Board’s decision was based on its assessment that the inflation outlook remains favorable, indicating that current policy settings continue to be appropriate. Latest baseline forecasts show inflation settling within the target range of 4.5 ± 1 percent for 2010 and 4 ± 1 percent for 2011 and 2012. The forecasts are also supported by well-contained inflation expectations which continue to be within target over the policy horizon. The Board noted that the growth in credit and liquidity are broadly at pace with economic activity. Moreover, the current movements of asset prices, particularly in the equities and property markets, do not appear to pose any short-term challenge to the economy.

At the same time, the Board noted that possible inflation pressures could come from generally higher global food and oil prices as well as the approved increase in tollway fees. In addition, while the rebound in investment is likely to add to productive capacity, leading to higher potential output over the medium term, a stronger momentum in demand growth may add to inflationary pressures in the short term.

Looking ahead, the BSP will remain vigilant against any emerging risks to the inflation outlook and will adjust policy settings if and when needed to ensure that future inflation remains consistent with the medium-term target while being supportive of sustainable economic growth.