BSP sees no urgency in adjusting rates

By Des Ferriols
Monday, October 13, 2008

The Bangko Sentral ng Pilipinas (BSP) won’t review its monetary policy settings out of the normal six-week cycle despite the globally-coordinated rate cuts last week.

BSP officer in charge Nestor Espenilla said over the weekend that the Monetary Board decided it was not necessary to review its policy settings when it held its executive meeting on Thursday after the policy meeting on Monday last week.

“But we saw no need to review the stance since we just looked at the situation last Monday,” Espenilla said.“But the MB is aware, of course, that these are extraordinary times so we are looking at the developments.”

Last week, central banks across the globe cut their interest rates by 50 to 100 basis points in an attempt to unfreeze the market where banks have stopped lending to each other.

But Espenilla said the Philippine situation was significantly different since banks here were still lending to each other and there was no liquidity squeeze seen in other markets.

“Right now I see no move to review these policy settings, other than looking at them in the next cycle,” Espenilla said.

The Monetary Board regularly reviews its policy settings on a six-week cycle and before the coordinated rate cut was done late last week, the BSP had already decided it would keep all its policy settings unchanged.

“What the MB is looking at and reviewing is primarily the inflation target,” Espenilla said.

Monetary authorities kept all monetary policy settings unchanged last week, ending weeks of speculation that the central bank has finally ended its tightening cycle amid slowing economic growth and easing oil prices.

Emerging from its policy meeting that was called three days ahead of the usual Thursday schedule, the Monetary Board announced that its key policy rates would remain at six percent for the overnight borrowing or reverse repurchase rate and eight percent for the overnight lending or repurchase rate.

Monetary tightening normally had the impact of slowing economic growth by reducing liquidity in the system and raising the cost of borrowing which would discourage production expansion.