The Bangko Sentral ng Pilipinas (BSP) Thursday raised banks' liquidity reserve requirement to 10 percent effective Friday from eight percent amid inflationary threats arising from the peso's weakness against the US dollar.
"This is intended to address potential inflationary pressures due to foreign exchange volatility," BSP Deputy Governor Amando Tetangco said, adding that the reserve hike would siphon off some 30 billion pesos from the banking system. He added increasing the reserve requirement will not weigh on the economy compared to raising interest rates.
MS International economist Patricia Liu said, "The reserve hike has a psychological impact on the [currency] market, but I think the impact will be short-lived since people think the political risks ahead of the elections are still there."
Liu said she agreed raising the reserve requirement would not have an immediate adverse impact on the economy, but added that in the long run banks' lending capability might be adversely affected.
The peso fell to a record low of 56.22 to the dollar on Jan. 29 amid growing pre-election political uncertainties.
Analysts largely expect the peso to weaken further to record lows ahead of the May polls, with one offshore currency strategist looking at a "conservative" 57 to the dollar level before May.
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