Philippine Ctrl Bk mulls hiking liquidity reserves

PHILIPPINES - The Philippine Central Bank is considering hiking anew the liquidity reserve requirement of commercial banks to help boost the ailing peso.
PHILIPPINES - The Philippine Central Bank is considering hiking anew the liquidity reserve requirement of commercial banks to help boost the ailing peso.

Buenaventura told Dow Jones Newswires on 5 August the central bank is studying the possibility of raising the reserve requirement by another two percentage points if appropriate.

The total reserve requirement of banks is 16% of total deposits, of which 7% are liquidity reserves. These are funds that must be invested in government securities. Mostly non-interest bearing statutory reserves form the balance.

Along with several other measures, the central bank raised the liquidity reserve requirement by two percentage points last month to help quell speculation against the peso.

Raising the liquidity reserve requirement drains funds from the system that could be used to invest on the peso market.

The liquidity reserve requirement was raised four percentage points last October to quell speculation against the peso triggered by the leadership crisis.

After trading in a broad range of PHP47.50 to PHP49.50 from late January to mid-April, the dollar has been dug in at well over PHP53 since early July due to numerous negative domestic and external factors. The dollar closed on 3 August at PHP53.450.

Last week, Philippine President Gloria Macapagal Arroyo urged the central bank to engineer a sharp rise in the peso by the end of the year and wipe out the speculative pressure that has bedeviled the local currency. Arroyo wants the dollar brought back to around PHP50.

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