THE Philippine central bank is considering cutting the amount it requires lenders to set aside as reserves in an attempt to boost liquidity in the financial system.
"Instead of communicating an easy monetary policy to the market by reducing policy rates, an alternative is to reduce the reserve requirement to infuse liquidity," said Deputy Governor Diwa Guinigundo in an interview with Bloomberg News yesterday.
Every single percentage point reduction will free about 30 billion pesos (US$626 million) of cash for the system, Guinigundo said.
While inflation in Asia has started to cool, policy makers must be watchful of price pressures as they seek to boost growth amid a global economic slump and tighter credit conditions, the deputy governor said.
"This shows the central bank is willing to support growth while showing it will remain vigilant against inflation," said Marcelo Ayes, senior vice president for treasury at Rizal Commercial Banking Corp in Manila. Lowering the reserve means the central bank wants "to spur economic activity."
The Philippine central bank has made it easier for banks to get funding by starting to lend in United States dollars and accepting the government's dollar-denominated bonds as collateral for peso debt. The central bank previously lent only in pesos and accepted only peso-denominated assets as collateral.
India's central bank last Wednesday lowered its cash reserve ratio for the second time in a week to ease the worst cash crisis since 2000 in Asia's third-largest economy.
"The issue here is one of liquidity and to address that, it would be useful to consider more accommodative fiscal and monetary policy, but with a view of not fueling inflation," Guinigundo said.
The central bank had required lenders since 2005 to keep 21 percent of their deposits in reserve.
Even with the possibility of recession in major economies, Guinigundo said he's sticking to an earlier growth forecast of 10 percent for overseas remittances and 6 percent for exports in 2009.
Money sent home by Filipinos working as nurses, helpers and seafarers abroad will expand at least 12 percent this year, he said.