By Julito G. Rada | Mar. 28, 2014 at
12:01am [ manilastandardtoday.com ]
The Bangko Sentral on Thursday kept
key interest rates at record low, but asked banks to increase reserves by one
percentage point, in what is viewed as the first sign of monetary tightening to
curb fast liquidity and inflation.
Bangko Sentral Governor Amando
Tetangco Jr. said the policy-making Monetary Board increased the rate on
reserve requirement of banks by one percentage point effective April 4.
The Bangko Sentral requires all banks
to maintain reserves against deposits in a bid to control the volume of money
created by the credit operations of the banking system.
“The Monetary Board’s decision to
raise the reserve requirement is intended to guard against potential risks to
financial stability that could arise from continued strong liquidity growth and
rapid credit expansion,” Tetangco said.
The Monetary Board, however, kept the
key policy rates at 3.5 percent for overnight borrowing and 5.5 percent for
overnight lending. The interest rate on special deposit accounts of 2 percent
across all tenors was also kept steady.
Bangko Sentral Deputy Governor Diwa
Guinigundo said the reserve requirement for universal and commercial banks was
increased to 19 percent from 18 percent; for thrift banks, to 7 percent from 6
percent; and for rural banks, to 5 percent from 4 percent.
Guinigundo said the adjustment in
reserve requirement would result in around P60 billion going into the vault of
the Bangko Sentral.
The pressure for accommodative policy
has waned and the Philippines needs measures to absorb liquidity and prevent
stretched asset valuations, the International Monetary Fund said Wednesday.
Tetangco earlier this month said the
central bank’s scope to hold interest rates had narrowed, and that a preemptive
move could be less disruptive.
“It’s best to be prudent, as the risk
of higher prices persists,” Jan Briace Santos, a debt trader at BPI Asset
Management said before the decision.
Domestic liquidity as of end-January
expanded 38.6 percent to P6.9 trillion from P4.984 trillion a year ago, due to
higher demand for credit in the domestic economy.
The Bangko Sentral said inflation rate
in March could accelerate to as high as 4.6 percent from 4.1 percent recorded
in February, driven mainly by high rice prices.
“Inflation in March is expected to settle
within [the] 3.7 percent to 4.6 percent range. Upward price pressures could
come mainly from rice prices due in part to the ongoing lean season,” Bangko
Sentral Governor Amando Tetangco Jr. said in a text message to reporters.
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