Bangko Sentral ng Pilipinas Gov. Nestor Espenilla Jr. (File photo by JOSEPH AGCAOILI / Philippine Daily Inquirer)
The central bank’s moves to tighten monetary policy while reducing the amount of cash banks are required to hold in reserve — seemingly opposing policies implemented almost simultaneously in recent months — had a net result of draining liquidity from the local financial system, the country’s chief bank regulator said.
In a speech delivered to bankers last Friday, Bangko Sentral ng Pilipinas Gov. Nestor Espenilla Jr. defended the regulator’s near-simultaneous moves to raising its key interest rates twice this year in response to rising inflation, while implementing two one-percentage point reductions in banks’ reserve requirements during the same period.
This is because the central bank also undertook policies to drain the market of an estimated P180 billion in liquidity that the reserve requirement cuts were estimated to have released into the local economy that is currently experiencing its highest inflation rate in at least five years.

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