Philippine c.bank says domestic liquidity adequate

MANILA, Aug 2 - The current level of liquidity in the Philippine financial system is enough to meet the needs of the economy without stoking inflation, the central bank governor said at the weekend.

"I believe the liquidity in the system is still sufficient to support growth, without fuelling inflation," Amando Tetangco told reporters in an e-mail.

The central bank has slashed interest rates by a total 2 percentage points since December, and is expected to keep the key overnight borrowing rate steady at 4 percent at its August policy review because of price pressures from oil prices.

Commercial banks' lending rates have dropped by as much as 115 basis points on average since the central bank began its rate easing cycle in December, Tetangco said, representing close to 60 percent pass-through of rate cuts.

"We don't really expect a full pass-through of the rate cuts on the average bank lending rates as banks differentiate among clients .... (but) the latest available data still show healthy bank lending, even as credit standards have tightened somewhat."

Tetangco said the central bank is watching for signs of a possible resurgence in price pressures given indications of a recovery in external demand as the global economy slowly climbs out of recession.

"We continue to monitor developments, particularly signs of global demand recovery and any build-up in commodity price pressures over the medium term, to ensure that our policy setting remains appropriate."

The central bank said the country remains on track to meet this year and next year's inflation target of 2.5 to 4.5 percent and 3.5 to 5.5 percent, respectively.