Inflationary liquidity under control despite cuts in bank reserves, according to BSP

Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr. (Photo: JOSEPH AGCAOILI / Philippine Daily Inquirer)

The Central Bank takes steps to tighten monetary policy while reducing liquidity Banks are required to remain in reserve – seemingly opposite policies implemented almost simultaneously in recent months – have had the net result of draining liquidity from the local financial system, said the country's main banking regulator

. Nestor Espenilla Jr. defended the regulator's almost simultaneous efforts to raise interest rates twice this year in response to rising inflation, while reducing banks' reserve requirements by two percentage points over the course of the year. same period.

Indeed, the central bank also put in place policies to drain the market of an estimated liquidity to 180 billion pesos as the reserve It is estimated that cuts in the local economy have reached their highest inflation rate for at least five years.

"In fact, the liquidity effect has had an impact on both reserve requirement reductions that we have made up to this year, is actually less than the draining effect of the the liquidity of open market operations and our large foreign exchange operations to manage the excessive volatility of the peso in the face of external uncertainties. "To counter the effects of the reduction in reserve requirements, the BSP Is relying on its weekly auctions of term deposit facilities, which encourage banks to deposit their excess cash with banks, the central bank in return for short-term returns, but this policy has a cost because the BSP must paying steadily increasing returns to immobilize those funds that were previously locked-in as statutory reserves at no cost to the regulator.

Espenilla, which marked its first year in Two weeks ago, the head of the central bank wants to reduce banks' reserve requirements – currently 18% of total deposits – to a single figure, saying that high reserves are used as a source of money. de facto tax on the economy

Critics have questioned the wisdom of the central bank to reduce reserves on one side while trying to fight the inflation of the economy. another, saying that moves are shy.

But Espenilla rejected criticism as "simplistic". "I dare say, we will not allow ourselves to be so limited in our assessment," he said, explaining that the Philippine economy, in full growth, needed "more bank intermediation to support it ".

He reiterated that he remained committed to the central bank's main mandate of fighting inflation, which stands at 5.2% in June and is expected to reach its highest level in the world. fourth quarter of 2018.

"All of our macroprudential and microprudential measures are not misappropriations of price targets and financial stability," said Espenilla. "They are deliberately pursued with the recognition that they are all related, and form a coherent strategic goal. "/ Atm

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