MANILA -- London-based Barclays raised the possibility of cut in Philippine banks' reserve requirements (RR) after the Bangko Sentral ng Pilipinas (BSP) said it it monitoring domestic liquidity conditions as inflation continue to go down.
On Friday, the Philippine Statistics Authority (PSA) reported that rate of price increases further slowed to 0.6 percent in August 2015 from month-ago's 0.8 percent bringing the year-to-date average to 1.7 percent.
Average inflation rate to date stood at 1.7 percent, way below the government's target band of two to four percent for 2015-18.
Last August's inflation level is the fourth consecutive month of below-target rate of price increases. Year-ago level is 4.9 percent.
BSP Governor Amando Tetangco Jr. said they will continue to monitor global oil prices and the El Nino phenomenon to check its impact on domestic liquidity.
"We will make adjustments to policy if needed to ensure just enough liquidity in the market so the favorable inflation path is sustained,” he added.
With this statement, investment bank Barclays, in a research note, said Tetangco's statement "is consistent with the central bank's stance that while activity levels remain healthy, its main concerns centre around volatility and market liquidity."
"We think the BSP is comfortable with the policy stance, but we acknowledge outside risks of easing in the reserve requirement ratio for banks if liquidity conditions deteriorate due to capital outflows," it said.
The last time the BSP adjusted banks' RR is in 2014 when it was hiked by a total of 50 basis points, 25 basis points each in March and May, as growth of domestic liquidity grew stronger than in the past years at a level of more than 20 percent.
To date, universal and commercial banks' (U/KBs) have 20 percent RR rate, one of the highest in the world, which is the reason why some analysts consider a possible cut as domestic inflation continues its deceleration. (PNA) LGI/JSV/RSM)
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