Liquidity seen to tighten mid-2017—Stanchart

An economist of Standard Chartered (Stanchart) forecasts tightening of domestic liquidity starting in the middle of 2017, thus, a possible cut in banks’ reserve requirement ratio (RRR) to pump out liquidity. 

Standard Chartered economist for Asia Chidu Narayanan projects a five percent cut in Philippine banks’ RRR in the first half as he forecasts the peso to touch 51 per US dollar by the third quarter of the year.

“We expect them to ease to support liquidity,” he said in a briefing Wednesday.

The last time the Bangko Sentral ng Pilipinas (BSP) adjusted bank’s RRR is in May 2014 when it was hiked by a percentage point to 20 percent for universal and commercial banks (U/KBs).

That year, the BSP hiked rates by a total of 50 basis points, 25 basis points each in March and May, the RRR as growth of domestic liquidity grew stronger than in the past years at a level of more than 20 percent.

Narayanan said any adjustment in the RRR would still depend on how liquidity holds up.

“Monetary conditions in the Philippines remains loose but that might reverse in the middle of the year,” he said.

The economist said the dollar was expected to remain strong in Asia and the depreciation pressure on the peso was to increase.

To date, the local currency is trading at 49-level to a dollar although it has touched the 50-level against the dollar last Jan. 19 and 20 due to statements by Federal Reserve chairperson Janet Yellen about the growth of the US economy, which she said is approaching the central bank’s growth targets.