The Monetary Board, in its meeting today, decided to increase the regular reserve requirement and liquidity reserve requirement by one percentage point each to mop up the excess peso liquidity and stem its inflationary impact. The Monetary Board also observed that the excess peso liquidity has found its way into the foreign exchange market and has contributed to the depreciation of the peso. In turn, the Board believed, this can further contribute to inflationary pressure.
The Monetary Board approved an increase by one percentage point each on regular reserves and liquidity reserves against peso demand, savings, time deposit and deposit substitutes of universal banks (UBs) and commercial banks (KBs) and common trust funds (CTF). The liquidity reserves for trust and other fiduciary accounts (TOFA-Others) will be increased by one percentage point. The regular reserve on said deposit liabilities of UBs and KBs will be raised to 10 percent from 9 percent as well as those for CTFs. In addition, the liquidity reserves on the deposit liabilities of UBs and KBs will be raised to 11 percent from 10 percent. Similarly the liquidity reserves for CTFs and TOFA-OTHERS will be raised to 11 percent from 10 percent. The increase in reserve requirements will be effective next Friday, 15 July 2005.
This will be complemented by the implementation of an improved Currency Risk Protection Program (CRPP) facility through a more competitive pricing mechanism. The CRPP will allow eligible corporates and other foreign exchange users to purchase foreign exchange from banks at a predetermined rate in the future. This will remove a significant amount of demand from the spot market and ease pressure on the exchange rate.
The BSP will continue to monitor closely the evolving developments in domestic liquidity and the foreign exchange market and assess their implications on future inflation and inflation expectations to ensure that they remain anchored. The Monetary Board will also continue to review how the recent policy moves will work out in the market and take appropriate measures in accordance with its primary mandate of promoting price stability.