The Philippine peso posted its biggest monthly drop since March, on speculation, the slowest inflation in 20 years may spur a reduction in banks’ reserve requirements.
Consumer prices may have risen between 0.5 percent and 1.3 percent this month on lower fuel and power costs, Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said on July 27. Inflation below 1 percent would give policy-makers room to reduce the funds it requires banks to hold in reserves, which at 20 percent of deposits is among the highest in the region, Monetary Board Member Felipe Medalla said this month.
The peso fell 1.3 percent from June 30 to 45.665 a dollar as of 11:03 a.m. in Manila, the biggest drop since March, according to the Bankers Association of the Philippines.
The currency declined 0.1 percent on Friday and dropped to 45.873 on July 29, a five-year low.
“I wouldn’t be surprised if the central bank lowers banks’ reserve requirements,” said Patrick Ella, an economist at Security Bank Corp. in Manila. ‘‘Every 1 percentage point reduction in the reserve requirement could potentially release about P100 billion ($2.2 billion) into the financial system.’’
Annual inflation this month slowed to 0.8 percent from 1.2 percent in June, according to the median estimate of economists in a Bloomberg survey. BSP held its benchmark interest rate for a sixth-straight meeting in June after the economy grew at its weakest pace in more than three years. The next monetary policy-setting meeting is scheduled on August 13.
The BSP will consider developments in the US and in China at its next meeting, Tetangco said.
The market has shifted focus from the timing of the Federal Reserve’s first rate increase to the ‘‘speed of normalization,’’ while China’s calmer financial markets may temper outflows from emerging economies,
including the Philippines, he said.