The central bank kept policy rates steady at its June 16 meeting, but it raised the banks’ required reserves to counter liquidity pressures, which could be fueled by expected inflows and the economy’s strength.
Governor Amando Tetangco said the Bangko Sentral ng Pilipinas was monitoring the impact of the developments in Europe and the US on capital inflows, domestic demand, liquidity, and inflation.
“We will ensure that the liquidity generated by these flows will not create further inflationary pressures,” Tetangco said in a mobile text message to reporters.
Tetangco said the central bank expects annual inflation in June to be between 4.6 percent and 5.5 percent.
The data is set to be released on July 5.
A reading above 4.5 percent, the annual rate in May, would be the highest since April 2009, when the rate was 4.8 percent.
A reading above 4.8 percent would be the highest since March 2009, when the rate was 6.4 percent.
“Our updated forecast inflation paths for the balance of 2011 and for 2012 still show that inflation would be manageable over the policy horizon,” Tetangco said.
The central bank’s target is for average inflation to be between 3 to 5 percent in both years.
Vincent Tsui, an economist at Standard Chartered Bank in Hong Kong, said the comments showed it was comfortable with the inflation outlook and would stay vigilant to the risk from Greece’s debt problems and of a US slowdown.
“Both factors implies BSP to stay put for now,” he said of the outlook for rates, although he saw room for a rise in reserve requirements to 21 percent at a July 28 policy review, taking them to their level before the global financial crisis.
The Bureau of Treasury said the Philippines plans to borrow 117 billion pesos ($2.7 billion) in the local debt market in the third quarter, 24 percent more than second-quarter debt sales.
The Treasury’s September quarter borrowing plan is same as the original debt sales set for April to June, although actual issues totalled just 94.021 billion pesos, based on Reuters’ calculations of state auction bid awards. The number does not include over-the-counter Treasury sales to state corporations.
The Treasury rejected some auction bids in the second quarter as some banks demanded higher rates.
The government, which heavily relies on borrowing to fund its budget deficit, plans to sell a total 830.9 billion pesos debt this year, of which 77 percent would be sourced from the local market.
It will sell 54 billion pesos of Treasury bills in six auctions and 63 billion pesos of T-bonds in seven auctions in the July to September period.
The size of the Treasury bill auctions was kept at 9 billion pesos, but the benchmark 91-day volume was raised to 2 billion pesos from 1.5 billion pesos.
The size of the 182-day T-bill offers were cut by 500 million to 3 billion pesos.
Manila has set a budget deficit target of 82 billion pesos in the third quarter.
It is well on track to meet this year’s budget deficit target of 300 billion pesos, or 3.2 percent of GDP, with the five-month shortfall only at 9.54 billion pesos due mainly to government underspending, data showed.
The government plans to cut the shortfall further to 2.6 percent in 2012 and to 2.0 percent by 2013, keeping it at that level until 2016 when President Benigno Aquino’s term ends.
Manila will launch an offer to swap shorter-dated local bonds for new 10.5-year and 20-year debt on July 5, as part of its liability management program, one of the deal arrangers said.
