Philippines banks may increase reserves
"The cheapest way for the central bank to manage excess liquidity in the system is not to pay for it. Instead of using the special deposit accounts by getting the funds through, you can do that by increasing the reserve requirement," Wick Veloso, HSBC treasurer, told reporters on Tuesday.
"They will be criticized by doing that, given that the objective in the medium term is to further decrease and primarily encourage growth. But the answer to that is that this is an extraordinary market situation where you have funds coming from offshore getting into the Philippines and creating liquidity," he said.
The BSP's Monetary Board on July 28 decided to keep policy rates but raised anew the reserve requirement of all banks and non-banks to 21 percent to siphon off liquidity from the domestic financial system. The increase brought the reserve requirement ratio to its highest since the 25 percent in December 1990, and came on the heels of two successive hikes in policy rates implemented in March and May this year.
"The two consecutive rate hikes are already sufficient. It already allows you to have a good amount of interest rate to develop capital markets that is going to appropriately answer for the corresponding inflation that you currently have," Veloso said.
Separately, Aurelio Montinola 3rd, Bank of the Philippine Islands president, said the BSP decision to increase the reserve requirement was a preemptive move.
"Hiking the RRR takes a little money in the system, which right now is very liquid. And so far, it has not much effect. Inflation is the big fear of all the countries, when you raise either the interest rates or the reserve requirement there's a lag effect, so the BSP will probably be a little bit preemptive," Montinola said.
"So, it is possible that there will be another hike in the RRR before the end of the year," he added.
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