Manila mulls reserve rate cut; govt spending rises

Budget figures showed that the government has increased spending, hoping to offer some support to the economy, whose exporters could suffer as major demand centres such as Europe and the United States tip towards recession in the face of the worst financial crisis in decades.

Central bank Governor Amando Tetangco said on Friday that the central bank had approved fresh measures to boost liquidity and added on Monday that the authority was studying the possibility of a cut in banks' reserve requirements to create more liquidity in the financial system.

‘I have asked our monetary stability sector to study the impact of a possible reduction in reserve requirements,’ he told reporters.

‘They are doing that now, and I would expect them to submit the results of the study and recommendations soon.’

Philippine banks have to park 10 percent of total deposits in non-interest earning regular reserves with the central bank and 11 percent in liquidity reserves, which earn market interest rates. The central bank has not tweaked banks' reserves ratios since July 2005.

Tetangco said a 1-percentage-point cut in reserve requirements would free up to 30 billion pesos ($623 million).