MANILA, Philippines?Loans extended by the Bangko Sentral ng Pilipinas through its rediscount facility fell sharply in February, indicating the reduced need of banks for financing given their growing liquidity.

Discount loans disbursed by the BSP in February amounted to P3.15 billion, declining by 82 percent from P17.7 billion in the same month last year.

For the first two months of the year, discount loans secured by banks amounted to P4.05 billion, an 88-percent drop from P34.46 billion in the same period last year.

The BSP extends these loans to help banks continue their lending operations.

But since the banks have enough funds for lending, they no longer need to turn to the BSP for extra funds.

Besides growing liquidity, the move of the BSP to raise the interest rate charged on discount loans also prompted banks to tap less of these funds from the central bank.

Starting February 2010, discount loans are charged an interest of 4 percent a year, up from 3.75 percent.

The BSP said it raised the interest rate on discount loans as part of an ?exit strategy? from the pump-priming initiatives implemented during the global economic crisis.

Growth in liquidity circulating in the economy should be reduced during the recovery stage, regulators said, to temper increase in demand and inflation.

Last year, the economy grew by 7.3 percent, the fastest pace in about three decades. The growth rate was much faster than the 1.1 percent recorded during the 2009 slowdown.

The BSP said that while there is a need to sustain the robust growth posted last year, it also has to take inflation into account.

A sharp rise in prices may happen if growth of money circulating in the economy is not managed, the BSP said.