"So large an easing could endanger the inflation forecast if maintained," the IMF said in a report released in February. "Staff (IMF executive board) argued that a rapid removal of tiering would be warranted if the inflation outlook were to become less favorable." The BSP full-year inflation forecast is 3.3-3.8 percent.

"In general," IMF added, "tiering complicates assessment of the policy stance." The report said tiering effectively relaxed monetary policy by 200 basis points, while private sector estimates between 50 and 300 basis points. "The reintroduction of the system also led to a rise in bond market volatility."

BSP Governor Amando M. Tetangco Jr. said tiering is only a temporary measure. "It’s not a permanent policy. The last tiering lasted 15 months and that’s too long," he said. This is the third time the BSP implemented the tiering scheme.

With tiering, banks’ placements with the BSP are subject to the following interest rates: the applicable BSP published rate for overnight borrowing or special deposit accounts for the first P5 billion; the applicable BSP published rate less 200 basis points for the next P5 billion; and the applicable BSP published rate less 400 basis points for amounts in excess of P10 billion.

According to Tetangco, the IMF views on tiering are mixed. "It’s best to wait for the credit/loan growth figures." The tiering was implemented last November. Bank lending totalled P1.985 trillion in January based on an expanded tally that now includes thrift banks. Based on the new series, bank lending showed year-on-year growth of 8.1 percent.