Banks’ reserve requirement lowered
Philippine Daily Inquirer
First Posted 03:18:00 11/08/2008
Filed Under: Banking, Central Banks, Economy and Business and Finance
The central bank, Bangko Sentral ng Pilipinas (BSP), announced Friday it would reduce the reserve requirement for banks—a move intended to ensure ample supply of money in the financial system at a time that credit supply has become a problem overseas.
Effective Nov. 14, banks will be required to keep 19 percent of their deposit holdings in the BSP vault, compared with the present 21 percent. The cut will allow them to use more funds for lending.
The BSP also raised its budget for its peso rediscounting facility to P40 billion from P20 billion, effective immediately. Banks in need of funds use this facility, mostly to support lending activity.
“The two measures are aimed at preemptively ensuring the proper functioning of the interbank market, and guarding against a possible liquidity or credit tightness arising from the global rise in risk aversion,” BSP Governor Amando Tetangco Jr. said in a statement.
The measures were approved by the BSP policymaking body, the Monetary Board, at its meeting on Thursday.
The loosening of monetary policy comes after inflation, as measured by the rise in the consumer price index, slowed to 11.2 percent in October from 11.8 percent in September. Analysts expect inflation to continue to slow down and revert to a single-digit level in the first quarter of 2009.
The slowdown in inflation is attributed to the drop in fuel prices in the world market. Also, growth in food prices had eased due to improved farm output and tempered demand.
Analysts say the BSP is not yet ready to reduce its interest rates, currently 6.0 percent for borrowing and 8.0 percent for lending.
In its latest inflation report, the BSP said decelerating inflation allowed it to stop a series of rate hikes it had made in June through to September.
“The reduction in the reserve requirement has been a medium-term policy objective of the BSP to lower banks’ intermediation costs, and the Monetary Board believes that present condition provide room for calibrated reduction,” Tetangco said.
He said the BSP would continue to monitor developments in the credit market and see whether further steps were necessary to help maintain a healthy banking system despite the global financial crisis. Michelle V. Remo; edited by INQUIRER.net
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