Philippine Central Bank Chief Plans More Reserve Cuts This Year

Bangko Sentral ng Pilipinas Governor Nestor Espenilla (Photo: Getty Images)

By Siegfrid Alegado

The Philippine central bank plans to further reduce the amount of money lenders are required to hold as reserves, Governor Nestor Espenilla said.

“Definitely, there’ll be more this year” on cuts to the reserve requirement ratio, Espenilla said in an interview in his office in Manila on Thursday. “We’re going to do it in small but multiple increments.”

Large banks in the Philippines are required to hold 19 percent of their deposits in reserve, one of the highest ratios in Asia, even after the central bank had reduced the requirement in March. The risk is that releasing more funds into the financial system could further boost inflation, which is already at a five-year high.

The governor made lowering the ratio one of his key objectives when he took office in July, and has said the era of using the ratio as a policy tool is over. Officials have also said they can use other tools including the weekly auction of term deposit to mop up liquidity if needed.

“It’s a continuing process,” Espenilla said. “If we want to go down to the level of our neighbors, that means it’s multiple small steps that get us there. We started very far.”

 

To contact the reporter on this story: Siegfrid Alegado in Manila at aalegado1@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net; Karl Lester M. Yap

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