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BSP won’t hike banks’ reserve requirements |
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By Donnabelle L. Gatdula
The Philippine Star 08/24/2005 The Bangko Sentral ng Pilipinas (BSP) said yesterday it has no plans yet of adjusting the banks’ reserve requirements to arrest the volatility of the local currency. "Not this time," BSP Governor Amando Tetangco Jr. said. He said the monetary authorities are still reviewing all options to avoid any possible economic repercussions. "We need to make a clear balance between demand and supply of money. We do not want to generate inflationary and deflationary pressure," he said. "We have sufficient liquidity in the system. We have been able to maintain our policy rate by closely watching the level of liquidity rate and narrowing (interest rate) differential," he added. The Monetary Board, the policy making body of the BSP, early last month decided to increase the banks’ reserve requirements to 21 percent from 19 percent. This means banks will have to raise their regular or statutory reserves to 10 percent from nine percent and their liquidity reserves to 11 percent from 10 percent. The increase in the regular reserve requirement and liquidity reserve requirement by one percentage point each is aimed at mopping up excess peso liquidity and stem its inflationary impact. The BSP’s move is seen to siphon off about P32 billion excess liquidity in the financial system. The MB, in adjusting the reserve requirements‚ also observed that the excess peso liquidity has found its way into the foreign exchange market and has contributed to the depreciation of the peso. Specifically, the MB approved an increase by one percentage point each on regular reserves and liquidity reserves against peso demand, savings, time deposit and deposit substitutes of universal banks (UBs) and commercial banks (KBs) and common trust funds (CTF). The liquidity reserves for trust and other fiduciary accounts (TOFA-Others) will be increased by one percentage point. The regular reserve on said deposit liabilities of UBs and KBs will be raised to 10 percent from nine percent as well as those for CTFs. In addition, the liquidity reserves on the deposit liabilities of UBs and KBs will be raised to 11 percent from 10 percent. Similarly the liquidity reserves for CTFs and TOFA-OTHERS will be raised to 11 percent from 10 percent. The increase in reserve requirements took effect on July 15, 2005. This will be complemented by the implementation of an improved Currency Risk Protection Program (CRPP) facility through a more competitive pricing mechanism. The CRPP will allow eligible corporates and other foreign exchange users to purchase foreign exchange from banks at a predetermined rate in the future. This will remove a significant amount of demand from the spot market and ease pressure on the exchange rate. The BSP said it will continue to monitor closely the evolving developments in domestic liquidity and the foreign exchange market and assess their implications on future inflation and inflation expectations to ensure that they remain anchored. The MB board, on the other hand, will continue to review how the recent policy moves will work out in the market and take appropriate measures in accordance with its primary mandate of promoting price stability. |
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