Aug. 21--THE Bangko Sentral ng Pilipinas (BSP) on Thursday took a pause from a monetary easing cycle that began December last year, with the policy-making Monetary Board saying it needed more time to digest global and local economic data before tweaking further its interest rates.

The BSP's overnight borrowing and lending rates remain at record lows of 4 percent and 6 percent, respectively.

"The Monetary Board decision to maintain policy rates is based on its assessment that current monetary settings are appropriate and that inflation is expected to remain within target over the policy horizon," BSP Governor Amando Tetangco Jr. told reporters.

He said putting off any further change in its monetary policy would allow its previous interest rate cuts to fully work their way in the domestic financial system.

Besides trimming its overnight rates by a cumulative 200 basis points since December, the BSP injected an additional P100 billion in the financial system with the earlier reduction in its reserve requirements by 2 percentage points and the increase in its rediscounting budget to P40 billion.

Despite a favorable inflation outlook, the expected global economic recovery may cause upward pressure on oil and other commodity prices, Tetangco said.

"We can't rule out continued easing given the right conditions in the market. If we see continued signs of economic growth, that affects commodity prices. It is inflation we're watchful of," BSP Deputy Governor Diwa Guinigundo said.

Guinigundo said inflation is projected to reach 3 percent this year, lower than the previous BSP forecast of 3.3 percent and within its target of 2.5 percent to 4.5 percent.

"If there are signs [that] inflation target is breached, then there will be a need for [an] exit strategy," he said.

"Tightening will be necessary if we see pressures building up and inflation threatened [the] target range," he said, adding that "the BSP will not hesitate [to] calibrate [its monetary tools]."

The market expects the BSP to start increasing its rates before March next year or after the May elections, as inflation is expected to accelerate in the fourth quarter of the year on signs of a recovering global economy.

Inflation dipped to a two-decade low of 0.2 percent in July on base effects as oil prices peaked last year, but prices are seen to accelerate in August.

For next year, Guinigundo said inflation is projected to reach 3.3 percent, which is lower than the BSP's earlier inflation forecast of 3.5 percent, indicating that the central bank has more room to loosen its key policy rates.

"We have fairly balance[d] risks between growth and inflation," the BSP official said.

He said the country's gross domestic product (GDP) growth is expected to be better in the second quarter, citing continued remittance inflows, better business process outsourcing (BPO) and export earnings, public power projects and an improvement in consumption.

"We can be more optimistic in the second quarter [compared with the first quarter]. We need to take a pause because [the] economy is much more stronger [in the second and third quarters] not only here, but also abroad," he added.

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