BSP withdraws credit aid for banks amid easing crisis

THE Philippine central bank on Thursday tightened its rediscounting facility in a move seen as a prelude to an increase in its key interest rates.

Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said the policy-making Monetary Board decided to phase out liquidity-enhancing measures put in place in late 2008 to prevent the global credit crunch from taking hold in the domestic market.

Effective March 15, the peso-rediscounting budget would be brought back to P40 billion from P60 billion, while the loan value of all eligible rediscounting papers would be cut to 80 percent from 90 percent of the borrowings bank’s credit instrument.

Monetary authorities also reduced the non-performing loan ratio requirement for banks wishing to avail of the rediscounting facility, from 10-percentage points to two-percentage points above the latest available industry average.

This move follows a January decision to align the peso rediscount rate to the overnight borrowing rate effective February 1.

As expected, the Board on Thursday decided to keep the overnight borrowing or reverse repurchase rate at 4 percent and the overnight lending or repurchase rate at 6 percent, citing manageable inflation.

Based on its latest forecast, the BSP said inflation is likely to reach 4.64 percent this year, down from an earlier forecast of 4.7 percent. For 2011, the central bank raised its forecast from 3.27 percent to 3.45 percent.

The BSP has maintained its policy rates at record lows since August last year.

Despite manageable inflation, Tetangco said the Board noted a broad range of indicators pointing to increasing momentum in domestic economic activity, such as the strong export numbers.

“While the recent pick-up in inflation has emanated largely from the supply side, conditions warrant a closer monitoring of upside risks—which include the food supply impact of the El Niño weather phenomenon, power supply concerns, possible demands for wage adjustments and global commodity price increases—as these could lead to a build-up in inflationary pressures and inflation expectations,” he said.

Market players had said that any reduction in the BSP’s policy rates would likely happen in the second half of this year, but would be preceded by the unwinding of its liquidity enhancement measures.

Besides the rediscounting facility, they said that the central bank might raise its regular reserves on banks.

The BSP cut its regular reserve requirement to 19 percent from 21 percent to lower banks’ intermediation costs in November 2008.

Reserve requirements refer to the percentage of bank deposits and deposit substitute liabilities that lenders must keep on hand or parked with the BSP as non-earning resources.

At the Philippine Dealing System, the peso on Thursday succumbed to a minor correction after two days of appreciation, currency traders said.

The local currency closed at 45.72 against the US dollar. The peso opened at 45.60 and traded to a high of 45.76 and a low of 45.56, with trading volume easing to $609.96 million from Wednesday’s over $1 billion.

One trader said the BSP might have intervened at today’s trading. Traders see the peso trading between 45.70 and 46.40.

At the Philippine Stock Exchange, the composite index increased by 0.1901 percent, or 5.93 points to 3,125.56.

“This can’t be sustained further due to the absence of news. It’s more of a technical action,” Justino Calaycay of Accord Capital said. He said the positive corporate earnings were one of the reasons why the market should shoot up.

The all-shares index dropped by 0.11 percent, or 2.15 point to 1,953.22.

Total volume of stocks reached 776.689-million worth P2.898 billion. Gainers were 30, trailing losers at 57. 77 issues were unchanged. –LAILANY P. GOMEZ Reporter with report from Maricel E. Burgonio