MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) cut the percentage of deposits a bank is required to keep on hand in a bid to free up more capital for lending in what is a growing economy.
The BSP announced on Thursday, February 15, that the Monetary Board "has approved the reduction in the reserve requirement ratio (RRR) by one percentage point to 19% from 20% as an operational adjustment to support [its] shift toward a more market-based implementation of monetary policy as well as its broad financial market reform agenda."
The reduction, noted the BSP, will apply to the reservable liabilities of all banks and non-bank financial institutions with quasi-banking functions currently set at 20%. It will take effect during the reserve week beginning March 2.
At the same time, the BSP said, "the reduction in reserve requirements will help mobilize liquidity in support of economic activity as well as capital market development over the medium term."
The Philippines has the highest RRR level in the region and the new policy would in effect allow banks to lend more to different sectors of the economy in a bid to sustain or expand growth.
In cutting the requirement, the BSP explained that it "believes it has attained sufficient progress in its shift towards the use of market-based monetary instruments since the adoption of the interest rate corridor (IRC) framework in June 2016."
"The Monetary Board observed that the BSP now has ample scope to mitigate the potential liquidity impact of a phased reduction in the reserve requirement via offsetting auction-based monetary operations," the central bank explained.
At its last monetary policy meeting on February 8, the BSP kept its benchmark interest rates but raised its inflation forecast to 4.3% from 3.4% for 2018 and to 3.5% instead of 3.2% for 2019 after observing the initial impact of the Tax Reform for Acceleration and Inclusion (TRAIN) law. – Rappler.com