BSP kept rates steady but to phase out crisis scheme

03/12/2010

The Bangko Sentral ng Pilipinas (BSP) kept interest rates unchanged yesterday but said it would phase out “crisis response” measures introduced during the global financial meltdown.

The key measures focused on liquidity for banking institutions, but the BSP said they were no longer needed as the Southeast Asian nation’s economy was showing strong signs of improvement.

“The Monetary Board noted that a broad range of indicators point to increasing momentum in domestic economic activity,” it said in a statement after the policy-setting body’s monthly meeting.

“Given ample liquidity and the continued stability of financial markets, the Monetary Board... decided to phase out liquidity-enhancing crisis response measures,” it added.

It slashed by a third to P40 billion the amount it can lend to banks to help them meet temporary liquidity needs.

The BSP also tightened rules that qualify banks for lending from that facility. The measures will take effect on Monday.

The overnight borrowing rate was kept steady at four percent while the overnight lending rate stayed at six percent. These rates have been in place since August last year.

In explaining its decisions, the BSP cited a 42.5 percent year-on-year rise in exports in January.

“Export growth is likely to gain more traction as the global economic outlook improves,” it said.

The BSP also said the inflation outlook remained “manageable.”

BSP Gov. Amando Tetangco Jr., in his first official act six weeks after undergoing an arterial heart bypass, said the central bank’s rediscounting budget had been reduced to only P40 billion from P60 billion.

The value of loans banks put up for rediscounting purposes has also been restored to 80 percent instead of 90 percent.

The reductions ensure against inflation rising at an unacceptable rate over the policy horizon as money supply is kept at a level considered appropriate for the country’s growth goal of up to 3.6 percent this year in terms of the gross domestic product.

Hiking the rediscounting budget to P60 billion and maxing the rediscounting value to 90 percent previously gave the banks access to more money for lending every time they tap the BSP rediscounting window. With the reduction, access to peso liquidity is effectively reduced.

In addition, the rediscounting privilege has also been tightened as the BSP now requires the banks to have non-performing loan ratios only two percentage points higher than prevailing industry average whenever they approach the rediscounting window. CL

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