Philippines: Surprise monetary easing

The cut in the reserve requirement ratio (RRR) is consistent with our perception of a dovish BSP bias following last week's statement on policy rates and upwardly-revised inflation forecast. The cut supports the view of greater tolerance towards a weaker currency. The 1ppt cut infuses P90bn of liquidity into the system. But higher offerings at the week's BSP Term Deposit Facility (TDF) auction would syphon out P50bn. BSP increased the weekly TDF offerings by P50bn to P110bn starting next week from P60bn last week. The net liquidity infusion is P40bn. The cut would still be seen as the BSP providing further stimulus to the system by encouraging banks to maintain lending and also to support the government's financing needs. We expect the currency to weaken.