Despite the increases in transport, utility and fuel prices, the BSP said these were factors outside monetary policies and required no monetary action.
The MB met yesterday to discuss the possibility of adjusting the monetary policies of the BSP, but officials said there was no compelling reason to lift a finger at this point.
Absent from the meeting was BSP Governor Rafael Buenaventura who is abroad on medical leave.
According to Acting Governor Alberto V. Reyes, however, the MB’s outlook did not change despite the increase in transport rates, utility charges and fuel costs.
"These are the principal risks to inflation but the outlook remains that of a continued manageable environment for inflation over the policy horizon," Reyes said.
He said that even if there were radical adjustments in these factors, they were outside the influence of monetary policy anyway and, therefore, would not require action from the MB.
"Also, unemployment rate is still double-digit plus there is spare capacity in manufacturing and sluggish bank lending," Reyes said, explaining that these factors all indicate that demand-driven pressures on consumer prices were not likely to materialize anytime soon.
That said, the BSP added that while the MB was not thinking of tightening its policies, there was no push to ease up either.
The MB said it would not relax the liquidity reserve requirements (LLR) of banks unless the demand increases substantially enough to warrant the release of more funds into the system.
The BSP expects the national inflation rate to be benign and this would give the Monetary Board enough room to stay its policy rates but neither was there a need to ease the liquidity reserve requirements of banks.
BSP Deputy Governor Amando Tetangco Jr. said any relaxation in monetary policy, including the adjustment in the LLR would have to be based on whether there was an increase in the demand for money.
"Right now, we don’t see this increase," Tetangco said. "Although there was growth in certain economic sectors, we did not see it in the credit-intensive sectors."
Although the MB has not touched interest rates since March last year, its last action was to increase the LLR last February, taking the air out of the speculative attacks that sent the peso to record lows early in the year.
The MB raised liquidity reserve requirements of banks from eight percent to 10 percent, a two-point increase that immediately took out at least P30 billion from the market.
"The increase in the liquidity reserve requirements (LRR) of universal banks and commercial banks was preemptive and intended mainly to mop up the money that is sloshing around in the system and would otherwise find its way into the foreign exchange market," Tetangco explained.
The peso has stabilized since then but Tetangco said the MB would not touch the reserve requirements until there was a substantial change in the demand for money.
"When growth happens in credit intensive sectors, then the MB will see to it that there is enough liquidity to meet demand," he said. "One measure that will be looked at is the level reserve requirement."
"The idea is to ensure that there is no new money being released into the system unnecessarily," Tetangco added.