RP's central bank sees more flexibility in rates

RP's central bank sees more flexibility in rates

MANILA (Reuters): Philippine central bank governor Rafael Buenaventura said on Wednesday lower-than-expected inflation in August would give the bank more flexibility in interest rate policy.

Buenaventura said although the bank had signaled it could lower interest rates or commercial bank liquidity reserve requirements in the face of favorable inflation, it need not do so immediately.

But he added the impact of the latest inflation data would be discussed during a meeting of the policy-making Monetary Board on Thursday.

"It gives us more flexibility but whether we should act or react now or wait for more trends, we'll see," Buenaventura told Reuters.

The two options -- a possible cut in overnight rates and the lowering of bank liquidity reserves -- would be discussed at the board meeting.

"It could be in the form of a cut or in the form of giving additional liquidity, but that remains up for discussion," Buenaventura later told reporters.

However, he indicated the reduction in liquidity reserves could take more time.

Asked about the possibility of a reduction, Buenaventura said: "Down the road, not right now."

The central bank chief had previously said it may lower banks' liquidity requirements from the current 11 percent depending on the level of money supply in the financial system.

Commercial banks' liquidity reserves have been jacked up a total four percentage points by the central bank in recent months to aid the weak peso.

Buenaventura had also said a 25-basis point cut in overnight interest rates was still possible this year if the peso remains stable and the export slide is contained.

The overnight borrowing rate is currently at 9.0 percent and the lending rate at 11.25 percent.

The National Statistics Office said annual inflation in August came in at 6.3 percent from 6.8 percent in July.

Buenaventura had said he expected the inflation rate to reach 6.7 to 6.8 percent for the period.

"It's really better than expected," he said, referring to the inflation rate.

The Monetary Board will discuss whether the downward trend in the country's inflation rates had been firmly established and whether it warrants a policy action "sooner rather than later", Buenaventura told reporters.