BSP keeps rates unchanged

In line with analysts’ expectations, the Bangko Sentral ng Pilipinas (BSP) kept key interest rates unchanged amid lower than expected inflation in July and August.

The overnight policy rates remained at 4.5% for lending and 6.5% for borrowing while the reserve requirement ratios were held at 21% for a third straight meeting of the BSP Monetary Board.

In a press conference on Sept. 8, BSP deputy governor Diwa Guinigundo said, “Given all the information that we have and the assessments we have made, we do not see any need to adjust course.”

He cited that inflation has remained well within the target of 3% to 5% for 2011. In August, inflation was at a four-month low of 4.3% as food prices remained tame and supply conditions in domestic and international markets favorable.

The Monetary Board, which is the policy making body of the bank, shared that a slowdown in the recovery of advanced economies should ease global inflationary pressures, which may in turn make risks to the inflation outlook recede.

Typically, decreasing interest rates makes borrowing more attractive and tends to stimulate demand and spending.

The Monetary Board said it would remain watchful of emerging conditions, noting that liquidity expansion and the growing pace of bank credit activity old stoke inflationary pressures.

Guinigundo said the BSP’s latest readings indicate that inflation will average 4.46% in 2011, 3.4% in 2012 and 3.23% in 2013.

He also disclosed his estimate for the peso dollar exchange rate for the rest of 2011. If his estimate of P42 to P45 to the dollar is correct, it may be music to exporters’ ears. A stronger peso makes Philippine exports more expensive and reduces the value of remittances from overseas Filipinos.

The Philippine Exporters Confederation had complained in August when the peso surged to a 3-year high of P41.925 against the dollar. — KATHERINE VISCONTI