heto reaction : double check mo na lang.... The BSP (Bangko Sentral ng Pilipinas) monitors the liquidity situation on a daily basis and attempts to control and moderate liquidity conditions by varying the supply of bank reserves to meet its macroeconomic objectives of financial stability. The periodic liquidity assessment is done by the BSP based on the bank reserves position, and the expected inflows and outflows from both domestic operations and foreign flows. Depending on the liquidity forecast, the BSP decides on a course of action to be taken to either supplement or withdraw liquidity. These are some of the factors that influence liquidity conditions in the economy: Domestic factors an increase in liquidity is required to cover inflation and GDP growth. Several instantaneous domestic factors also influence the liquidity in the system. Domestic liquidity or M3 surged 30.9 percent to P6 trillion in August from P4.6 trillion year-on-year, as banks disbursed more loans and more money was freed up from the Bangko Sentral’s special deposit account facility. Most commonly, quarterly or annual advance tax payments draw liquidity out of the system as a lot of liquid money gets locked with the government. On the other hand, any large payouts by the government or higher corporate sector spending can increase the liquidity in the system. Just like the “Money supply growth was driven largely by the expansion in credits to the domestic economy,” Bangko Sentral said. Funds inflows A strong economic performance and the relative under-performance in the developing countries attracted the attentions of many large global investors who were drawn towards investing here in the Philippines. Uncontrolled capital flows can result in rising inflation, currency appreciation, loss of competitiveness and reduction in monetary control. The Bangko Sentral earlier required trust entities to gradually reduce SDA placements that were not consistent with the revised guidelines by November 2013. “M3 growth rates are expected to decline once these adjustments have been completed. The temporary period of strong M3 growth is therefore not expected to fan inflationary pressures,” it said. BSP latest baseline forecasts continued to indicate within-target inflation over the policy horizon, amid the stronger pace of growth in domestic liquidity in the coming months. Data showed domestic claims grew 11.7 percent in August, due to the continued increase in claims on the private sector (18.2 percent), in line with the faster growth in bank lending. Tools to control liquidity: Monitor the liquidity situation periodically and takes necessary steps to control the situation from time to time. Using various direct and indirect policies to control the short term and long-term liquidity position. Various instruments used by the BSP to control liquidity: Cash reserve ratio: The BSP uses the cash reserve ratio (CRR) as a tool to control the medium to long-term liquidity issues. An increase in the CRR results in an increase in the amount of money that banks have to maintain with the BSP as a percentage of their deposits. This reduces the overall liquid funds with the bank and hence reduces the overall liquidity. Liquidity adjustment factor: The liquidity adjustment factor (LAF) was introduced a decade ago as a part of financial reforms. From Bloomberg Business News. Philippines Further Limits Access to Special Deposit Accounts By Karl Lester M. Yap - May 20, 2013 The Philippine central bank will further limit access to special deposit accounts, stepping up efforts to curb inflows and reduce costs of managing liquidity. Starting 2014, Bangko Sentral ng Pilipinas will ban so-called investment management activities, a type of account in banks’ trust departments, from SDAs, according to a memorandum posted on its website today. The central bank will begin to gradually phase out these funds this year, according to the memo.
Posted on: Tue, 01 Oct 2013 21:35:12 +0000
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