Philippine inflation pressure easing—central bank

MANILA—The Philippine central bank said Thursday inflation pressure was easing as it kept its key interest rates unchanged, but announced moves to cut the volume of money in circulation.

Central bank governor Amando Tetangco said previous actions by the bank’s Monetary Board, which jacked up overnight-lending and -borrowing rates by a combined half-a-percentage-point in March and May, were now taming price rises.

“These developments suggest that the two previous policy rate adjustments are starting to work their way through the system,” Tetangco told a news conference.

The overnight borrowing rate was kept unchanged at 4.5 percent and the overnight lending rate stayed at 6.5 percent, Tetangco said.

However, the board raised by a percentage-point the reserve requirement – the portion of deposits that banks cannot invest – in a bid to mop up excess cash that could trigger more inflationary surges.

“The Monetary Board decision to raise the reserve requirement is a preemptive move to counter any additional inflationary pressures from excess liquidity,” Tetangco said.

The reserve requirement went up to 9.0 percent for large lenders and 5.0 percent for thrift banks, which should remove 38 billion pesos ($873 million) from the system, deputy central bank governor Diwa Guinigundo told reporters.

“Excess liquidity continues to be the more dominant risk,” Guinigundo said.

Last week the government announced on year inflation was 4.5 percent in May.

This brought the five-month inflation rate to 4.2 percent, or within the government’s full-year target of 3.0-5.0 percent for both this year and next.

Moody’s Investors Service, in raising the Philippines’ sovereign debt rating on Wednesday to within two notches of investment grade, cited central bank success, among others, in reining in inflation.