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THE
Bangko Sentral ng Pilipinas (BSP) has just about
exhausted its monetary tool kit for keeping prices
stable across the country, and has started looking to
fine-tune banks’ deposit-reserve requirement to see if
this will help achieve the goal.
The
broad aim is to encourage domestic interest rates to
trend lower as offsetting mechanism to price pressures
on the staple rice, for example, and the elevated price
of imported oil.
Deputy
BSP Governor Diwa Guinigundo said Wednesday simulations
are ongoing as part of an assessment process intending
to discover how much lower the deposit reserves could be
brought without complicating inflation.
Lowering
banks’ deposit reserves releases tens of billions of
pesos into the system, or enough liquidity to lift
further already elevated inflationary pressures at
present.
Guinigundo said if the deposit reserves were lowered,
its beneficial impact could be passed on to consumers in
the form of lower interest rates for loans and higher
returns for bank deposits.
“If we
can bring it down, it can also be passed on to
borrowers,” he said.
The
deposit-reserve level is that part of deposits the banks
may not lend on to borrowers but must instead be set
aside for contingency reasons.
It currently stands at 21 percent, allowing banks to
lend only 79 centavos for every peso in their vaults,
and acts as a form of cost or disincentive for the
industry.
Guinigundo said the lowering of the deposit-reserve
level must both be carefully timed and appropriately
calibrated to encourage greater lending activities—and
therefore, potentially higher growth overall.
“We have
started making simulations so we’re ready to act should
the situation warrant [it],” he said.
He
acknowledged that while banks’ loans were likely to
shoot up, there was equal likelihood for the peso
liquidity level to shoot upward also, possibly
complicating the BSP’s carefully calibrated inflation
goal of keeping this within the 3 percent to 5 percent
range this year.
Guinigundo noted the
Philippines
has one of the highest deposit-reserve levels in the
region, resulting from the need to strengthen the
banking system after the hardships of the 1997
regionwide financial crisis.
Had the
banks proven stronger and had liquidity not surged to
where they are in recent years, then it should be
possible for the BSP to lower the deposit reserve level,
the BSP official explained.
Although
the reserves are an important monetary tool, they
represent friction costs to banks that are passed on to
consumers in the form of lower deposit-rates and higher
borrowing costs. |
