BSP monetary policy stance 'appropriate'

MANILA, Philippines - Monetary authorities believe that the current policy stance remains appropriate as of the moment in light of the benign inflation outlook.

Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said in an interview with reporters that the current monetary policy stance of the central bank remains appropriate given the recovering economy as well as stable inflation expectations.

“The direction is really to tighten the monetary policy but this is not yet the time to do it. Given all the developments, we have the same view and we have the same outlook basically which means that the monetary policy remains appropriate,” Guinigundo stressed.

The policy-setting body of the BSP is scheduled to meet on July 15 to decide whether or not to keep its key policy rates unchanged.

The BSP slashed its key policy rates by 200 basis points between December of 2008 and July of 2009 to cushion the impact of the global economic meltdown. This brought the overnight borrowing rate to a record low of four percent and the overnight lending rate to six percent.

Monetary authorities decided to keep its key rates at record lows for eighth consecutive policy-setting meetings since July last year amid the ongoing debt turmoil in Europe, the growing tension between North and South Korea, and the stronger-than-expected GDP growth in the first quarter of the year.

However, the BSP started phasing out its liquidity enhancing measures that were implemented way back in November 2008 in light of the gradual global economic recovery at the start of the year.

Crisis-related measures that were tweaked included the increase in the rate on a short-term lending facility to four percent from 3.5 percent, the reduction of the peso rediscounting budget from P60 billion to P40 billion and further to pre-crisis level of P20 billion, the restoration of the loan value of all eligible rediscounting papers to 80 percent from 90 percent of the borrowing bank’s credit instrument, and the restoration the non-performing loan (NPL) ratio requirement of two percentage points from 10 percentage points.

Guinigundo told reporters that the BSP has already lifted almost all of the crisis-related measures except for the reduction of the reserve requirement for banks to 19 percent from 21 percent implemented to release more liquidity into the system to support economic activities.

The BSP has put on hold the implementation of its exit strategy due to the stronger-than-expected gross domestic product (GDP) growth in the first quarter of the year as well as the benign inflation outlook.