Peso weakness not caused by reserve requirement cut

MANILA--The central bank on Sunday allayed worries that its move to cut the reserve requirement ratio (RRR) for banks will cause the peso to depreciate.

Bangko Sentral ng Pilipinas (BSP) Governor Nestor Espenilla said the central bank sells foreign exchange from its reserves to manage excessive peso volatility.

“That in itself also has the effect of draining peso liquidity from the system which causes a self-correction,” Espenilla said in a statement sent to the media.

Espenilla earlier said the RRR reduction “should be neutral on the exchange rate.”

he BSP announced on February 15 a 1 percentage point cut in the Philippines’ RRR, which takes effect on March 2.

The peso has depreciated to near 12-year lows as the government’s P8-trillion infrastructure program drives demand for imports. The peso closed at P51.89 to the dollar on Friday, according to the Philippine Dealing System.

Espenilla also said the BSP was not pursuing a looser monetary policy by reducing the RRR.

The central bank chief said any excess liquidity from the RRR cut would be soaked up by the central bank’s open market operations in the context of the interest rate corridor and term deposit facility auctions.

“That’s why we don’t see it as an easing of monetary policy stance. Not at all,” Espenilla said.

Meanwhile, Espenilla on Sunday also admitted that he had been diagnosed with tongue cancer last year, but that his doctors had recently declared him “cancer-free.” Abs-cbnnews