MANILA, Philippines—The Monetary Board on Thursday decided to keep policy rates steady on signs that the rate of rise in consumer prices was “leveling off.”
This means that the Bangko Sentral ng Pilipinas’ overnight borrowing rate still stands at 4.5 percent while its overnight lending rate remains at 6.5 percent.
However, monetary authorities raised the reserve requirement on deposits for all banks by a percentage point.
BSP Governor Amando M. Tetangco said the decision to maintain its monetary policy was based on latest baseline forecasts that indicated a lower path as well as favorable inflation figures.
“These developments suggest that the two previous policy rate adjustments are starting to work their way through the system,” Tetangco said.
He was referring to the 25-basis point increases that had been implemented twice in the past.
Also, Tetangco said the BSP’s highest policymaking body decided that the increase in the reserve requirement on deposits and deposit substitutes of all banks and nonbanks with quasi-banking functions would take effect on June 24.
Reserve requirements refer to the percentage of bank deposits and deposit substitute liabilities.
Banks may not lend such an amount and must keep it on hand or in deposits with the Bangko Sentral ng Pilipinas.
Changes in reserve requirements have a significant effect on money supply in the banking system. It is used by the central bank to stabilize prices.
According to BSP Deputy Governor Diwa Guinigundo, the latest move brings to 9 percent the required regular reserves for universal banks and commercial banks, and 5 percent those for thrift banks and rural banks.
This decision “is a preemptive move to counter any additional inflationary pressures from excess liquidity,” Tetangco explained.
“The Monetary Board believes that expectations of continued strong capital inflows, driven by positive market sentiment over the favorable prospects for the Philippine economy, could fuel domestic liquidity growth and contribute to inflation risks,” Tetangco said.