Too low interest rates are dangerous as these might cause the inflation to shoot up, according to the Bangko Sentral ng Pilipinas (BSP).
Inflation has plummeted to six-month high of 3.2 percent in July, prompting the BSP to carefully study whether the prevailing borrowing and lending rates should be cut further.
The BSP cut borrowing and lending rates in the last Monetary Board (MB) meeting on Aug. 2 by 25 percent or 25 basis points. One hundred basis points are equal to one percent.
Overnight borrowing rate or reverse repurchase facility (RRP) is now only 3.75 percent while overnight lending rate or repurchase facility (RP) is now only 5.75 percent.
The rate cut last Aug. 2 was the third time for this year.       
According to the BSP, too low borrowing and lending rates for too long can cause asset price inflation to shoot up.
The increase in asset price  inflation is the main reason why the meeting of the MB is carefully focused on price and monetary developments.
“BSP will continue to monitor price and monetary developments and adjust them accordingly. We will prevent asset price inflation,  avoiding interest rates that are just too low and for too long,” BSP deputy governor for monetary stability sector Diwa Guinigundo emphasized to The Daily Tribune.
Inflation is the rise in the general level of prices of goods and services in an economy over a period of time.
In many countries, particularly those that are not following market conditions, central banks are pressured to keep low interest rates to avoid public uproar over increasing prices of basic commodities.
The country’s inflation has risen to six-month high of 3.2 for July because of higher electricity and water prices, according to the National Statistics Office.        
According to the official, rice in  inflation can be prevented if interest rates will be set normally based on market conditions.
“Because we have latitude to reduce rates. Interest rates will have to be set at levels low enough to sustain economic growth but not too low to abet inflation,” Guinigundo added.