Unchanged Monetary Policy Stance
Amidst greater financial market volatility and fund outflows from emerging markets, the Monetary Board of the BSP kept its overnight and special deposit account rates unchanged today. The decision to maintain the overnight borrowing and lending rates at 3.5% and 5.5%, respectively and the SDA rate at 2% was anticipated especially as BSP Governor Amando Tetangco said earlier that he saw "no urgency" to change policy rates. As noted in our Quarterly Report ("In a good place", 6 Aug 2013), the BSP’s relatively more relaxed attitude towards the capital outflows may be traced to the country’s robust current account and overall beneficial impact of these outflows on the exchange rate and its own balance sheet. Nevertheless, the BSP said in its statement that "the balance of risks to the inflation outlook has shifted slightly toward the upside", citing mainly possible oil price pressures due to tensions in the Middle East, while downplaying the inflation impact of higher M3 growth, which it said is temporary. The Monetary Board will meet again on October 24 by which time more clarity on the Fed's taper plans and the global market's reaction are expected.