BSP keeps interest rates steady despite inflation rise

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Inflation has been on the uptrend over the past 5 months largely due to higher food prices

MANILA, Philippines – Despite the sustained rise in inflation over the past 5 months, the central bank left its interest rates steady in a policy meeting Thursday, February 6.

The Bangko Sentral ng Pilipinas (BSP) kept its key overnight borrowing rate at a record low of 3.5%, where it has been since October 2012. It also maintained its overnight lending rate of 5.5%.

“The Monetary Board’s decision is based on its assessment of manageable inflation. While inflation has risen slightly due mainly to the recent increase in food prices on account of adverse weather conditions, latest baseline forecasts continue to indicate that the future inflation path is likely to stay within the target ranges,” BSP Governor Amando Tetangco Jr. said in a statement.

Inflation is one of the main factors the BSP looks at when setting its interest rates, which influence the rates that local banks charge on their loans.

Low bank rates boost demand for loans, which, in turn, fuel household and business spending. Increased spending may drive consumer prices up and this is what the central bank closely monitors.

Over the past 5 months, however, inflation has been on the uptrend due to extraordinary factors such as food supply constraints brought about by losses from typhoons.

As of January, inflation stood at 4.2%, a 2-year high.

Tetangco said the inflation outlook remains “slightly weighted toward the upside given pending petitions for adjustments in utility rates and the possible uptick in food prices.” The central bank targets to keep inflation between 3% to 5% in 2014, and 2% to 4% in 2015.

“The Monetary Board will continue to closely monitor and assess evolving growth and liquidity conditions and will consider policy adjustments, when needed, to ensure continued price and financial stability,” he concluded. –

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