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BSP Increases Liquidity Reserves By Two (2) Percentage Points

10.05.2000

The Monetary Board has approved an increase in the liquidity reserves by two (2) percentage points.  The increase will take effect on 13 October 2000.  Liquidity reserves will then be at 5 percent, up from the present 3 percent.  Meanwhile, the regular reserve requirement will be maintained at the current level of 9 percent.   

The 2-percentage point increase in liquidity reserves is expected to mop up domestic liquidity by about P23 Billion. Excess liquidity in the system has been indicated by the observed substantial increase in banks’ overnight placements of their excess funds with the BSP. The new measure will siphon off this excess liquidity on a more permanent basis. In turn, this is expected to mitigate the pressure against the peso coming from this excess peso liquidity.

The increase in liquidity reserves is not expected to materially affect the intermediation cost of banks because these reserves will earn market interest rates. As such, the BSP is confident that this will not lead to higher bank lending rates.

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