Exit strategy includes review of reserve requirement

Bank reserve requirements could be raised as part of a plan to unwind stimulus efforts, the Bangko Sentral ng Pilipinas (BSP) said on Friday, a day after announcing that an exit strategy was being implemented starting with a review of its rediscount rate. Changes to the reserve requirement, currently at 19 percent, "is something we continue to consider as part of the exit strategy," central bank Deputy Governor Diwa C. Guinigundo told reporters. "A careful consideration is required precisely because while we may need to increase it or reverse the adjustment of two percentage points so a reversal would mean a return to the old rate, that may in fact counter our medium-term objective... to address the issue of financial intermediation costs," he added. On Thursday, central bank Governor Amando M. Tetangco, Jr. told reporters that the BSP was keeping its rediscounting budget but at the same time reviewing its rediscount rate. He replied in the affirmative when asked if the move was the start of the central bank’s exit strategy, or the reversal of monetary policy easing implemented to keep the economy afloat amid the global financial crisis. The BSP has also cut its overnight borrowing rate to a record low of 4 percent, but analysts do not expect any immediate tightening. — BusinessWorld