THE monetary authorities ruled out any reduction in the banks’ deposit reserve requirement unless the aggregate placement in what used to be the central bank’s special deposit account (SDA) window had been reduced to about half.
This was learned from Bangko Sentral ng Pilipinas (BSD) Deputy Governor Diwa C. Guinigundo in a recent interview where he told financial reporters certain events have to happen before such a reduction may be implemented.
The antiliquidity SDA mechanism had been replaced by a new system of monetary policy crafting designed to put more teeth to the central bank’s policy rates, called the interest-rate corridor or IRC.
BSP officials said they would, in the medium term, eventually cut the banks’ reserve requirement rate (RRR) as a result of the new system.
The banks’ RRR, or the amount of deposits banks are required to hold in reserve in their vaults, is one of the highest in the region at 20 percent.
“I think when the current P1-trillion deposits have gone down to half, perhaps [then] we can consider because we don’t want to find ourselves in a situation where we are mopping up liquidity and migrating to overnight deposits and term deposits. On the other hand, you are releasing liquidity through the reduction in the reserve requirement,” Guinigundo said.
“I think we have to look at all the numbers and developments in the market before we are able to consider adjusting the RRR,” he added.
Latest data from the central bank show there remain some P934 billion in the old SDA window as of July 1 this year.
Guinigundo said when the volume of deposits has gone down to about half, something is going to happen to interest rates offered at the term deposit facility.
“Maybe it will not be 2.5 percent anymore by then. It will start moving up because that is the floor,” he said.
Only recently, HSBC economist Joseph Incalcaterr said the central bank statement on the possible reduction of the banks’ RRR as a result of the siphoning off of liquidity through an auction mechanism is positive news for the foreign banks that want to try the Philippines.
The HSBC economist said the foreign banks should not be burdened by the RRR adjustments when it comes.