Bangko Sentral keeps policy yield rates unchanged

The Bangko Sentral ng Pilipinas (BSP) is keeping its benchmark interest rates at a record low as easing inflation shields the country’s economy from the European debt crisis.

In a press conference Thursday, BSP Gov. Amando Tetangco Jr. said that the overnight borrowing or reverse repurchase remains at 4 percent and the overnight lending or repurchase rate at 6 percent.

This was the ninth straight meeting wherein the board decided to keep its policy rates unchanged.

At the height of the global financial crisis, the BSP cut its key policy rates by 200 basis points between December 2008 and July 2009 but introduced several liquidity-enhancing measures to cushion against the impact of the global economic meltdown.

“The Monetary Board’s decision was based on its assessment that current monetary policy settings continue to be appropriate, given the favorable inflation outlook and on-target inflation expectations,” Tetangco said.

He said there is a benign inflation outlook with consumer prices expected to stay within the 3.5-percent to 5.5-percent target for the year and 3-percent to 5-percent target for 2011.

Other crisis-related measures that were tweaked included the reduction of the peso rediscounting budget to P40 billion and further to pre-crisis level of P20 billion from P60 billion.

The Monetary Board also restored the loan value of eligible rediscounting papers to 80 percent from 90 percent of the borrowing bank’s credit instrument, and the non-performing loan ratio requirement of 2 percentage points from 10 percentage points.

But monetary authorities decided to keep the reserve requirement for banks. As part of its liquidity-enhancing measures against the global financial meltdown in 2008, the BSP slashed the reserve requirement of banks to 19 percent from 21 percent to release more liquidity into the financial system.

Reserve requirements refer to the percentage of bank deposits and deposit substitute liabilities that banks must keep on hand or as deposits with the BSP.

Deposits maintained by banks with the BSP up to 40 percent of the regular reserve requirement are paid interest at four percent per year, while liquidity reserves are paid the rate on comparable government securities.

Tetangco said monetary authorities would continue to keep track of domestic liquidity conditions given the prospect of strong foreign exchange inflows.

“The Monetary Board stands ready to adjust monetary policy settings as needed to safeguard the BSP’s price stability objective,” he added.

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