How BSP is preparing to curb liquidity growth

Posted at 04/28/2014 4:59 PM

MANILA – The Bangko Sentral ng Pilipinas (BSP) said it will continue to deploy the strategy of implementing pre-emptive measures in addressing liquidity growth in the country.

BSP Governor Amando Tetangco said the central bank will remain vigilant and will consider pre-emptive macro-prudential measures if domestic liquidity growth continues to be strong.

“The BSP will remain on the lookout for heightened financial stability risks from sustained rapid growth in domestic liquidity. There are still limited signs of financial market stresses. But if liquidity growth continues to be strong, even as the inflation outlook stays manageable, we will not hesitate to again consider further pre-emptive macroprudential measures,” he said at the annual ACI Convention in Cebu.

Tetangco said the BSP earlier implemented these measures to maintain financial stability.

The most recent measure was the increase in reserve requirement to keep a lid on liquidity growth that Tetangco said could lead to possible asset bubble formation.

The BSP also placed limits on banks’ exposure to non-deliverable forwards (NDFs) to contain market behavior; and prohibitions on access to special deposit accounts (SDA) for non-residents and investment management accounts (IMA) to help ensure the potency of monetary tools.

“As appropriate, therefore, we will continue with this strategy,” said Tetangco.

Tetangco also said that actions by the BSP in adjusting to global market trends will remain “data-dependent,” adding that the central bank is “not wedded to a pre-set course of policy actions.”

Aside from liquidity growth, the BSP’s monetary policy responses will be based on key economic factors such as inflation, growth prospects and exchange rate.

Tetangco noted that the BSP will keep a close eye on the ongoing rebalancing of global growth and the expected normalization of monetary policy overseas to help sustain the momentum of the Philippine economy.

“For now, it seems…things remain just right in our economy. As they say, so far, so good. The economy has survived the turbulences of the onset of normalization. But this does not mean, we can afford to let our guard down. We are just at the cusp of normalization,” he said, noting that there are still uncertainties in market tendencies and US Federal Reserve rates.