nestor a espenilla, jr : opening remarks during the chat with analysts chat with analysts by mr nestor a espenilla, jr, governor of bangko sentral ng pilipinas ( bsp, the central bank of the philippines ), via audio teleconference, manila, 25 july 2018. * * * good afternoon. whether you are here with us today at the bangko sentral ng pilipinas ( bsp ) or are participating via audio - conferencing, it is my pleasure to welcome all of you. thank you for joining this first by - invitation - chat we have organized for economic and financial analysts. our objective this afternoon is to promote better understanding of the bsp ’ s policy actions and provide background on developments that have prompted our monetary policy decisions. let me begin with our mandates. the bsp has three. our primary mandate is to promote price stability conducive to a balanced and sustainable growth of the economy. we are also tasked with maintaining financial stability and developing the payments system. since 2002, the bsp has been committed to the inflation targeting framework. this calls for monetary policy decisions to be forward - looking and dependent on comprehensive and rigorous assessment of all relevant data and forecasts. the framework also calls for flexibility of the exchange rate so that we can conduct independent monetary policy primarily focused on domestic conditions. nevertheless, external factors are always considered. we also react to excessive exchange rate volatility particularly if this affects inflation expectations and poses a risk to the inflation outlook. our it framework has been reinforced with the adoption of the interest rate corridor ( irc ) system in 2016. with the development of auction - based instruments complementing the overnight reverse repurchase borrowing rate as the policy rate signal, the bsp has expanded its options for maintaining firm monetary control. early this year, economic data suggested that an adjustment in policy rate was not yet warranted as the uptick in prices was driven mainly by supply - side factors. moreover, our forecast continued to show inflation upticks as transitory and moderating within the target in 2019. nevertheless, recognizing increasing volatilities in world oil prices and interest rates, the bsp responded to changing monetary conditions and allowed the term deposit facility ( tdf ) rates to rise. market rates have correspondingly risen. our two successive policy rate hikes in may and june were measured and deliberate responses to the evolving economic environment and dynamic market conditions. these were meant to help anchor

we waited for alternative mechanisms to be developed before embarking on this journey in order for the reform to be policy neutral. with the recent firm anchoring of market rates to the irc, we now have room for the reduction of reserve requirements over the medium - term as an operational adjustment, which we started early this year. i would like emphasize that the rrr cuts are not intended to be expansionary as these are offset by compensating actions. excess liquidity is reabsorbed through our open market operations and significant fx operations. the upward trend in market rates validates tighter market conditions. finally, i would like to emphasize that the rrr cuts will be gradual and phased over a number of years. we have already achieved significant progress this year. a total of 200 bps reduction in 2018 is in line with our medium - term goal of reducing rrr from 20 percent to single - digit level over a six - year period. moving forward, the bsp will continue to review and improve the operational features of the irc system to ensure greater flexibility and efficiency in conducting monetary operations. indeed, these are important reforms that make us very optimistic about the continued growth of the philippine economy in a sustainable manner. we thank you for your time and interest in wanting to hear about these initiatives. we will be happy to take your questions. 2 / 2 bis central bankers'speeches