Philippine banks remain very liquid—BSP

The Bangko Sentral ng Pilipinas has reiterated that liquidity in the domestic economy was sufficient to help achieve faster economic growth even as the latest assessment of the eurozone pointed to the region’s entering a recession this year.

BSP Deputy Governor Diwa Guinigundo said the Philippine banking sector remained awash with cash as evidenced by its more than P1.5-trillion placement in the central bank’s special deposit account facility.

“Any time there is a need for liquidity (such as to support investment plans), there is enough money available to be pulled out,” Guinigundo told reporters. He said companies should be encouraged to engage in more investment activities and take advantage of the available resources in the banking system at low interest rates.

The government expects the economy to grow 5 to 6 percent this year, faster than last year’s 3.7 percent.

The BSP has supported efforts to achieve faster growth so far this year through interest rate reductions.

Last Thursday, the BSP cut its key policy rates by another 25 basis points after it did the same in January. The move brought the central bank’s overnight borrowing and lending rates, which influence commercial interest rates, to record lows of 4 and 6 percent, respectively.

Lower rates are expected to boost demand for loans, which are seen to increase consumption and investments.

The rate reductions were done amid the ongoing economic and financial crises in Europe, which economists have projected to enter a mild recession this year.

The developments in the eurozone are seen dampening the growth of emerging markets such as the Philippines, given the fact that the Western region is a major export market, a key source of foreign direct investments and is host to many migrant workers.

Guinigundo said the Philippines still has a chance of hitting its growth target for the year despite the unfavorable developments offshore.

He said the BSP had the option of cutting its key policy rates by 50 basis points, instead of just 25 points, last Thursday, but went for the smaller amount of reduction, believing it would be enough to help the economy post a decent growth rate this year.

“There may be a question on why we [BSP] did not implement a 50-basis-point cut. The answer is that the economy does not need such amount of reduction [just to achieve its growth target],” Guinigundo said.