BSP phases out liquidity measures but keeps rates
The central bank on Thursday said it was phasing out liquidity-enhancing measures as part of a continuing move to tighten monetary policy to control money in the financial system amid the recovering economy.
The policy-making Monetary Board cut its budget for short-term loans to banks under its rediscount facility by a third to P40 billion, even as it kept benchmark interest rates steady.
"The Monetary Board noted that a broad range of indicators point to increasing momentum in domestic economic activity," it said in a statement.
"Latest export numbers have been quite strong, and export growth is likely to gain more traction as the global economic outlook improves," it added.
Aside from cutting its rediscount budget, the central bank also tightened the eligibility requirements by restoring the loan value of eligible rediscount paper from 90 percent to 80 percent of the borrowing bank’s credit instrument.
It also brought back the bad loan ratio requirement of two percentage points — from 10 points — above the latest industry ratio for banks wishing to avail themselves of the facility.
These will all take effect starting March 15.
The BSP kept the overnight borrowing rate at 4 percent, which banks use to price their loans, steady since consumer prices remained stable.
"The current movements of asset prices, particularly in the equity and property markets, do not appear to pose any significant short-term challenges to the economy," it pointed out.
Still, the central bank cited improving exports, which grew at their fastest pace of 42.5 percent in almost 15 years in January following increased orders from major Philippine trading partners, as a sign of an economic pickup.
While the recent pickup in inflation has emanated largely from the supply side, the BSP said it would monitor risks, including the impact of an El Niño-induced drought on food supply, power supply concerns, wage increase demands and rising commodity prices in world markets.
"The Monetary Board will act decisively and adjust monetary policy settings accordingly if and when the second-round effects of supply shocks become evident," it added.
Toni Gonzaga
Mike Defensor