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Monetary Board maintains key rate |
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By Des Ferriols
The Philippine Star 02/10/2006 Surprising no one, the Bangko Sentral ng Pilipinas (BSP) decided to keep its key interest rate unchanged for a fourth consecutive month as a stronger peso helps keep inflation near a 17-month low. The Monetary Board (MB), BSP’s policy-making body, said it will maintain the rate at which it borrows overnight from commercial lenders at 7.5 percent. The peso’s 7.5 percent gain against the dollar since the BSP last raised borrowing costs on Oct. 20 is helping control inflation by making imports less expensive. The BSP is working within the framework of keeping inflation rate within its 2007 target of four to five percent, explaining that monetary actions taken today took at least 14 to 18 months to filter through the system. BSP Governor Amando M. Tetangco Jr. told reporters that domestic liquidity growth was slowing down from 11.9 percent year-on-year in November to a growth rate of only 9.6 percent in December. The BSP said the growth in domestic liquidity slowed down mainly due to the decline in net lending to the National Government which led to a dip in overall credit to the public sector. With the national budget deficit on a downtrend, there would be even less pressure for the government to borrow although the BSP has been suggesting that the Arroyo administration increase its domestic borrowing. Despite the increase in the value-added tax rate, Tetangco said monetary authorities expected the impact to consist mainly of "one-off increases in prices" and was unlikely to fuel a sustained rise in inflation. "In addition, mitigating measures are also being planned to cushion the impact of the VAT increase," Tetangco said. "The BSP supports the non-monetary measures of the National Government to address the sharp price increases in major commodities and services." Tetangco said global energy prices continue to be the key risk factor to future inflation. "Spot and futures of oil have again assumed an upward path given geopolitical tensions in major oil-producing countries," he said. Over the near term, Tetangco said oil prices are expected to remain sensitive to news relating to supply disruptions given limited surplus production capacity. The inflation target is set by the government which the BSP uses to set its monetary policy direction over a two-year horizon. |
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