A WEEK after its cut in the universal and commercial banks reserve requirement ratio (RRR), the Bangko Sentral ng Pilipinas (BSP) Monetary Board moved to cut its deposit requirement again—this time on smaller banks in the system.
BSP Governor Benjamin E. Diokno announced to the media on Thursday afternoon that the Monetary Board decided to cut the RRR of thrift banks by 2 percentage points from the current 8 percent down to 6 percent—with the implementation dates as follows: 100 basis points effective May 31; 50 basis points effective June 28; and, 50 basis points effective July 26, 2019.
For rural and cooperative banks, the RRR was also cut by
100 basis points—from 5 to
4 percent—effective
May 31.
Rizal Commercial Banking Corp. (RCBC) economist Michael Ricafort said that every 1-percent cut in RRR of smaller banks equate to additional peso liquidity into the financial system of approximately P9.3 billion for thrift banks and about P1.8 billion for rural and cooperative banks.
This means that the recent cut of the BSP effectively releases about P20.4 billion in fresh liquidity to the local cash stream.
Exactly a week ago, the Monetary Board cut the RRR of the universal and commercial banks by a total of 2 percentage points—equivalent to about P190 billion in additional peso liquidity to be infused into the financial system. As per implementation dates, about P95 billion will be released by end-May; about P47 billion by end-June 28; and another P47 billion by end-July.
Economists and bankers earlier lauded the BSP for cutting the banks’ RRR, saying it will be positive for the country’s overall growth.
“We think the cut is a positive for economic growth as domestic liquidity and aggregate demand will be augmented, especially in light of the disappointing firstquarter GDP [gross domestic product] print caused by the delayed budget passage and a tepid trade component,” Security Bank Corp. economist Robert Dan Roces said.
“Technically, this injection will cause the peso to face stronger depreciation pressures with more money circulating in the domestic economy; and a sharper peso depreciation could stoke inflationary pressures,” Roces added.
But the staggered implementation, he said, will seek to arrest this tendency.
“As the RRR cuts are done in a gradual, managed nature, its end goal will be to bring down financial intermediation costs, as well as orienting monetary instruments to become more market-based, thereby leading to better credit growth that goes into capital formation and consumption,” Roces said.
Also earlier this month, the BSP cut its main policy rates by 25 basis points.
Diokno said their decision to cut after several months of unchanged monetary-policy stance and agressive rate hikes in 2018 was based on their assessment that the inflation outlook continues to be manageable, with easing price pressures owing to the decline in food prices and improved supply conditions.
Inflation is projected to fall further than earlier expected for this year—with their forecast now at 2.9 percent from the earlier 3-percent forecast about two months ago.
For next year, however, their inflation projection was scaled upward to 3.1 percent from the earlier 3-percent forecast.