Ignoring rising inflation levels due to recent adjustments in transport fare and oil prices, the Bangko Sentral ng Pilipinas (BSP) kept its key policy rates untouched yesterday but it will now be more watchful of any more pressures to inflation rates, which is projected to close higher than expected 4-5 percent.
The BSP policy making body the Monetary Board (MB) in deciding to maintain unchanged rates, said the central bank is firmly committed to "delivering stable prices and will continue to monitor the development of second-round effects from supply-side pressures so as to assess the need for policy rate action in the future."
At its policy rates meeting yesterday, the MB decided to keep the BSP’s key policy interest rates unchanged at 6.75 percent for the overnight borrowing or reverse repurchase rate and nine percent for the overnight lending or repurchase rate.
The decision to keep rates unchanged was based on the MB assessment that the prevailing outlook for future inflation and output growth continues to support the argument for maintaining present monetary settings.
The BSP’s latest outlook for inflation shows higher forecasts in 2004-2005 but the projected rates would be driven mainly by pressures from the temporary supply side factors, which cannot be addressed directly by monetary policy. The MB believes that the expected uptrend in inflation is temporary and would not require monetary action.
Monetary tightening restrains inflation pressures primarily by curbing aggregate demand, and the direct impact on consumer goods of supply-side factors, such as movements in world oil prices, is on production costs rather than on demand.
BSP sees inflation in July to range between 5.3 percent -5.9 percent. Fullyear, the BSP still expects inflation to average at 4.1 percent, taking into factor the July rates.
