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.