The Monetary Board’s decision is based on its assessment that current monetary settings remain appropriate, as the cumulative 100-basis-point reduction in policy rates in 2012 continues to work its way through the economy. The latest baseline forecasts follow a slightly lower path but remained within the lower bound of the target over the policy horizon. Risks to the inflation outlook appear to be evenly balanced around the baseline forecasts, with inflation expectations broadly aligned with the inflation target range. Moreover, global economic activity has stabilized in recent months, although fiscal consolidation and financial market stresses in advanced economies continue to temper overall market sentiment. Global economic prospects, therefore, are likely to stay subdued, thus mitigating upward pressures on commodity prices.
At the same time, the Monetary Board observed that the domestic economy has gained pace on the back of strong domestic demand and buoyant business sentiment. The growth of real gross domestic product (GDP) was stronger than expected at 7.1 percent in Q3 2012, driven by private spending and fiscal stimulus. In the months ahead, adequate liquidity and strong bank lending are expected to continue to support domestic economic activity and sustain the economy’s momentum.
On balance, therefore, the Monetary Board is of the view that the manageable inflation outlook and robust domestic growth support keeping policy settings steady. Going forward, the BSP will continue to monitor evolving price and output conditions to ensure that the monetary policy stance remains consistent with ensuring stable prices while supporting economic growth.