Bangko Sentral keeps key rates unchanged

The Bangko Sentral ng Pilipinas (BSP) maintained its key policy rates at 7.5 percent for the overnight borrowing or reverse repurchase (RRP) rate and 9.75 percent for overnight lending or repurchase (RP) rate.

The decision to keep the rates at their current levels was due to a steady inflation outlook.

Latest BSP forecasts continue to show a decelerating path for inflation, with the likelihood that the target headline inflation rate in 2007 of 4.5 percent will be achieved, in the absence of additional cost-push shocks.

The sustained decline in core inflation, the MB said, also implies reduced generalized pressures on consumer prices.

The Monetary Board has been maintaining the same policy rates since October last year.

BSP Governor Amando Tetangco Jr. said the moderate improvements in demand indicators and weak credit activity also suggest a scenario of limited demand-based price pressures.

"Nevertheless, the MB considered that the balance of risks to the future path of inflation remains tilted toward the upside, mainly on account of the outlook of high oil prices," he said.

Tetangco, however, warned that the prospect of sustained rise in global oil prices along with associated adjustments in power and possibly transport costs, implies a continuing environment of supply-side pressures.

He also cautioned that more than ample liquidity in the banking system can also be a source of concern.

Given these considerations, he said the MB recognized the need to remain focused on managing the risks to inflation expectations, assessing the likelihood of second-round effects, and closely monitoring development in liquidity conditions.

The BSP chief assured that the MB will remain strongly committed to achieving the inflation target for 2007 and stands ready to act against emerging risks to the outlook for inflation and to inflation expectations.

This year, the BSP expects inflation within the four to five percent range.