these reductions out. the purpose is to promote a more efficient and level financial system which is less biased against 3 / 5 bis central bankers'speeches deposit - taking financial institutions. the purpose is to lessen market distortions which create inefficiencies. the purpose is to shift to market - based monetary instruments for more effective monetary policy transmission. we have heavily relied on reserve requirements for a long time in a situation of underdeveloped banking and financial markets and limited open market operation tools. this is no longer the case for the philippines. our financial system is more sophisticated, disciplined, and resilient ; our economy is much stronger today. further, the bsp has attained sufficient progress since the adoption of the interest rate corridor ( irc ) framework in 2016 which provides us ample space to mitigate potential liquidity impact of a phased reduction in reserve requirement via off - setting auction - based monetary operations. there is misconception that these phased reductions in the reserve requirement signal easing of the monetary policy stance. this is certainly not the case — and i cannot emphasize this enough — this is an operational adjustment that is part of innovative financial sector reforms that we are currently implementing. any ensuing excess liquidity is to be siphoned off by bsp ’ s dynamic open market operations and transactions with the national government. further, the flexibility of the exchange rate provides additional adjustment mechanism.... therefore, analysts ’ fears that this will fuel more inflation is based on an incomplete analysis of the impact of this operational adjustment. moreover, to the extent that speculators use rrr reduction as a pretext for peso depreciation, bsp participates in the market to manage excessive volatility. we believe this can effectively drain peso liquidity from the system. there will be self - correction, which is how efficient markets work. ultimately, the bsp has many options to maintain firm monetary control. shifts in monetary policy stance will continue to be signalled through changes in the policy rates. thus, analyst concerns of ensuing looser monetary policy is really unfounded. second - regulators like the bsp must foster an enabling ecosystem where competition and responsible innovations are encouraged to thrive. we believe that regulations should not stand in the way of market developments. at the bsp, we have strategically opened up the banking system to competition. for instance, since the enactment of the foreign banks liberalization law in 2014, the monetary board has approved 12 foreign bank applications and 5 representative offices

. at the same time, inflation for transport, restaurant, and miscellaneous goods and services also went up. the year - to - date average of 4. 2 percent using the 2006 - based basket was slightly above the government ’ s announced inflation target range of 3. 0 percent ± 1. 0 percentage point for 2018 while the year - to - date average of 3. 7 percent using the 2012 - based basket remain within the government ’ s announced inflation target range. the first round price effects of train are evolving more or less as expected. we continue to see the upward inflationary effects as transitory. however, we are carefully assessing next round effects and how inflation expectations could be affected. the various social safety nets 1 / 5 bis central bankers'speeches complementing the train are expected to temper these second round effects. moreover, the resulting improvement in productivity will likely moderate inflation pressures over the medium term. nevertheless, the bsp will remain watchful against signs of higher inflation becoming more broad - based and persistent to ensure that inflation expectations remain consistent with the target. domestic liquidity and credit dynamics remain accommodating to our expanding economy. credit expansion is accompanied by solid demand for loans across key economic sectors. further, the philippine banking system capped 2017 with sustained growth in assets, deposits, and capital. this was accompanied by improved asset quality, firm liquidity position, and strong capitalization. overall, the philippine banking system remains sound and stable. we expect these improvements to continue. the philippines ’ external position also continues to be manageable amid global headwinds. the bop deficit is a reflection of an economy that is growing rapidly in a way that is sustainable. the current account balance also mirrors the saving and investment behaviour of the economy. our savings investment gap has stayed positive since 2003 ( hence the ca surpluses during this period ) but has started to converge in 2015 due mainly to the rise in investments and increase in infrastructure spending. over time, these investment led economic activities will result in the expansion of the economy ’ s potential capacity. the robustness of the country ’ s external position is anchored by our large gir and secondary buffers such as sustained foreign direct investments, remittances and bpo receipts, along with investment grade - rating that guarantees ready market access for any equity and debt financing requirement. meanwhile, the peso continues to flexibly reflect the day - to - day market operations. exchange rates act as automatic stabilizer if they move in a way that damp