Philip­pines raises re­serve ra­tio as rate in­crease seen near­ing


The Philip­pine cen­tral bank or­dered lenders to set aside more money as re­serves to curb liq­uid­ity, a move that an­a­lysts say could sig­nal in­creases in the bench­mark in­ter­est rate in the com­ing months. The bank raised the re­serve re­quire­ment to 19 per cent from 18 per cent for uni­ver­sal and commercial banks ef­fec­tive April 4, it said in a state­ment in Manila on Thurs­day. It kept the rate it pays lenders for overnight de­posits at a record-low 3.5 per cent, as fore­cast by 13 of 16 econ­o­mists sur­veyed by Bloomberg, with three ex­pect­ing an in­crease of a quar­ter of a per cen­t­age point.

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 yes­ter­day. Thurs­day's de­ci­sion to raise the re­serve re­quire­ment is to guard against po­ten­tial risks that could come from rapid credit ex­pan­sion, Gover­nor Amando Te­tangco said. "The cen­tral bank guid­ance seems quite hawk­ish, even with the larger-thanex­pected move of rais­ing the re­serve ra­tio by a per cen­t­age point, which means tight­en­ing has be­gun," said Euben Paracuelles, a Sin­ga­pore-based econ­o­mist at No­mura Hold­ings. "More pol­icy ac­tion will come," he said, adding that the bench­mark may be raised by one per cen­t­age point in the sec­ond half of the year.

The peso slipped 0.1 per cent to 45.038 per dol­lar at the close be­fore the de­ci­sion. It has weak­ened more than nine per cent against the US dol­lar in the past 12 months, among the worst per­form­ers in Asia. The bench­mark stock in­dex fell 0.5 per cent at the close ahead of the an­nounce­ment.

Money-sup­ply growth has ex­ceeded 30 per cent ev­ery month from July through Jan­uary, and Te­tangco ear­lier this month said the cen­tral bank's scope to hold in­ter­est rates has nar­rowed, and that a pre­emp­tive move can be less dis­rup­tive.

The cen­tral bank ex­pects to mop up 60 bil­lion pe­sos ($1.3 bil­lion) with the re­serve re­quire­ment in­crease, Deputy Gover­nor Diwa Guini­gundo said at a brief­ing. Liq­uid­ity growth may sta­bilise by the sec­ond half of the year, with growth slow­ing to be­tween 15 per cent and 17 per cent, he said.

Pres­i­dent Benigno Aquino, in a Fe­bru­ary in­ter­view, said there is no dan­ger of the econ­omy over­heat­ing, and played down the risk of as­set bub­bles form­ing as he in­creases spend­ing to a record this year to boost ex­pan­sion to as much as 7.5 per cent.

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