BSP looks into reserve requirements

BSP looks into reserve requirements

As one monetary policy option

June 12, 2011, 12:32am

MANILA, Philippines — Aside from considering adjustments to benchmark interest rates, the Bangko Sentral ng Pilipinas said Friday it will also look into options such as tinkering with banks' reserve requirement, which the monetary authority has left untouched since a surprise cut in November 2008 to 19% from 21%.

"We will look at the options that are available to us like policy rates, (banks') reserve requirement and macroprudential toolkits," Bangko Sentral ng Pilipinas Governor Amando Tetangco told reporters just days before it holds
its policy meeting on June 16.

After annual inflation unexpectedly slowed to 4.5% in May, many economists now expect the central bank to leave overnight rates unchanged after two 25-basis-point increases earlier this year to stay ahead of the inflation curve.
Overnight rates now stand at 4.5% for borrowing and 6.5% for lending.

The central bank had said that without the rate hikes, inflation this year would average around 5.6%, beyond its target of 3%-5% for 2011. After the rate hikes, it expressed confidence that inflation will stay within the target range, although it will likely be closer to the higher end of the band.

Tetangco said the central bank will review its inflation forecast for 2011 to take into account the surprise reading in May.

Aside from inflation, Tetangco said the monetary authority will also consider the 4.9% growth in the domestic economy during the first quarter, a slower pace than the fourth quarter's 6.1% expansion and growth of 8.4% in the first quarter of 2010.

"We will take (into account) first-quarter GDP figures and new information about the US economy and the pace of recovery of other advanced countries," said Tetangco, lending credence to some economists' dovish outlook for next week's policy meeting.

Ecoonomists as betting the BSP will likely keep its benchmark interest rates unchanged at its policy meeting next week, economists say, after inflation readings for May came in surprisingly tame.

Seven of 10 economists polled by Dow Jones Newswires expect the BSP to keep the overnight rates at 4.5% for borrowing and 6.5% for lending at its June 16 meeting, following another 25-basis-point hike last month – the second rate hike this year. Prior to the release of May inflation data, economists were unanimous that another 25 basis point increase is warranted for the central bank to stay ahead of the inflation curve and ensure inflation stays within the 2011 target of an average between 3% and 5%.

The Philippines recorded annual inflation of 4.5% in May, at the lower-end of the central bank's 4.5%-5.5% forecast for the month. While the reading was above April's revised rate of 4.3%, it was below the 5.0% expected by the market.

Still, Tetangco, sounded a hawkish note, saying the May inflation numbers suggest "upward price pressures remain." (Dow Jones)

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