The adoption of new monetary-policy framework by the Bangko Sentral ng Pilipinas (BSP) will have no immediate effect on the country’s growth, but could potentially cut the needed reserve money for local banks to extend out loans to financial consumers.
This was the assessment made by HSBC economic experts in a commentary on the dynamics that come with the BSP’s implementation of the interest-rate corridor (IRC).
However, HSBC said it hopes the implementation of the IRC would allow the BSP to lower reserve requirement ratios that could lead to more efficient lending operations.
“Despite flush liquidity in the Philippines, the financial system is not able to allocate credit in the most efficient manner,” HSBC said.
HSBC sees the IRC effectively increasing the efficiency of monetary policy to better manage liquidity, spur interbank lending, and support the long-term migration of funds from being stored at the central bank to infrastructure development.
The BSP announced earlier its transition of monetary-policy framework to an IRC monetary-policy mechanism.
The IRC will be implemented in the second quarter of the year, and is seen making the framework of monetary operations more effective.
The corridor, the BSP earlier said, will be around the BSP’s policy rate and special deposits account
(SDA) facility rate.
The BSP’s lending or repurchase rate will be the ceiling of the corridor, and the SDA interest rate will be the floor of the corridor.
The BSP has formally announced it will have a media briefing on the implementation of interest-rate corridor
today, May 16.