MANILA, Philippines -- The country’s most influential banking lobby confirmed that its members would voluntarily halve the amount of US dollars they hold in a bid to keep dollars available in the market rather than on banks' books.

The Bankers Association of the Philippines (BAP) said in a statement it would also encourage banks to lend more actively to each other via an interbank repurchase facility.

The move limits US dollar holdings to $25 million from $50 million and comes after interbank lending worldwide repeatedly froze in the wake of the financial crisis as banks, fearing defaults, hoarded cash.

"We have adopted three resolutions all meant to further increase liquidity -- the oil of the economic engine -- and keep the economy strong amid current external challenges and position it for the recovery of the global economy," Aurelio Montinola III, BAP president, said in the statement.

The announcement confirms what Bankers Association sources told Reuters late on Thursday.

The industry group said speculation has dominated markets, with panicky trades keeping spreads of Philippine sovereign bonds wide, despite falling oil prices, lower government foreign debt maturities and expected high remittance flows late in the year.

"BAP's self-restraint moves will give the market crucial time to appreciate the strong foreign exchange fundamentals, and moderate the emotion that expects things to get worse, when fundamentally they should get better," Montinola said.

The measures were the industry's response to the central bank's call for a coordinated move domestically to address the impact of the financial turmoil, which has undermined local equities and the peso, down 15.7 percent this year.

Central bank governor Amando Tetangco told reporters on Friday authorities will not consider anymore an earlier proposal to lower banks' dollar overbought limit, or the ceiling on allowed foreign currency purchases from the market, to $20 million from the current $50 million.

"It is not necessary because they (banks) already have an agreement," Tetangco said.

Some traders said banks voluntarily slashed their dollar overbought positions because if the central bank imposes a cut, it would take time before authorities raise the limit again.

Last year, the central bank raised the dollar overbought limit to the current $50 million for the first time since the 1997/1998 Asian financial crisis.

"The banks responded to the central bank's moves to distribute liquidity better," said Jose Mario Cuyegkeng, economist at ING Bank in Manila. "The banking association also sees that the reduced level of overbought is adequate enough to service true requirements."

But the moves will not serve as a guarantee against currency volatility, Cuyegkeng said.

"There's always that risk because the external environment is so volatile," he said. "But by reducing the amounts that the banks keep on a daily basis, then it also provides dollar liquidity to corporations."