BSP announces fresh cut to banks' reserve requirement
MANILA, Philippines — The Bangko Sentral ng Pilipinas on Thursday announced a new round of cut to the amount of cash that banks must hold as reserves, a move that monetary authorities said was meant to manage domestic liquidity and credit conditions.
In a statement, the BSP said it cut the reserve requirement ratios (RRR) by 250 basis points for big banks and by 200 bps for digital banks. The central bank also slashed the RRR for small banks by 100 bps.
The adjustment brought the reserve requirement for big banks to 9.5%, and to 6.0% for digital banks. Meanwhile, the RRR for rural and cooperative banks was trimmed to 1%.
The new RRR levels would take effect on June 30. From a high of 20% in 2018, the BSP has now fulfilled its commitment to bring down the RRR for big banks to a single-digit level by 2023.
“Lowering the (reserve requirement) to single digits was a pledge by the late governor (Nestor) Espenilla and (Felipe) Medalla was able to make good on that promise,” Nicholas Mapa, senior economist at ING Bank in Manila, said in a Viber message.
“Given that BSP will also be winding down some pandemic relief for SME loans, the reduction in reserve requirement will free up roughly P75 billion in loanable funds,” he added.
No change in monetary policy
Thursday’s announcement came after the BSP kept its policy rate unchanged last month, a first since it started its aggressive tightening moves in May last year to combat brutally-high inflation.
Banks are required to hold a certain amount of cash as standby funds, which do not generate returns. By cutting the RRR, banks are now allowed to deploy more funds for lending and investments.
The move also came ahead of the expiration of the BSP’s pandemic relief measure for small businesses, which secured loans that are counted as part of banks’ reserve requirements in a bid to boost lending to the sector. The measure, first implemented at the height of lockdowns in April 2020, would expire by the end of the month.
In its statement, the central bank stressed that the reduction to RRR does not constitute any shift in the monetary policy settings, adding that taming inflation remains its top priority at the moment.
Inflation slowed down to 6.1% in May, inching closer to the BSP’s 2-4% target, government data showed.
“This operational adjustment is in line with the BSP’s ongoing efforts towards a more active and flexible approach to liquidity management through market-based monetary operations,” the BSP said.
Domini Velasquez, chief economist at China Banking Corp., agreed with the BSP.
“Given BSP’s statement, we do not expect any change in monetary policy or do not interpret this as easing of monetary policy in this period of still elevated inflation—very far still from the target of 4%,” she said. — with Ramon Royandoyan
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