Bangko Sentral ng Pilipinas (BSP) governor Nestor Espenilla Jr. said on Thursday the recent cuts in the banks’ reserve requirement ratio (RRR) are already enough to communicate their strategy for the banks’ funds in the long-term.
“We’ve done enough with 200 basis points in total RRR cuts this year in line with the strategy to implement this important financial sector reform over the medium term in a gradual and phased manner,” Espenilla said.
This is following the International Monetary Fund’s (IMF) recommended in its 2018 Article IV Mission conclusion that the BSP pause on further RRR cuts for the year until inflation expectations are anchored.
Towards the end of May this year, markets showed mixed reaction to the monetary board’s decision to bring down by another percentage point the deposit requirement of banks — or the portion of depositors’ balances that banks are asked to keep idle in the BSP’s vaults as reserves.
This RRR cut is the second slash since BSP governor Nestor Espenilla Jr took office in July 2017. Each cut is estimated to release P90 billion worth of liquidity into the local cash stream.
The BSP’s seeming eagerness to consistently bring down the banks’ idle funds has been lauded by the big guns in the lending sector, saying the RRR cut will enable borrowers to have “access to more sources of funds and more efficient cost of borrowing that is expected to propel more economic activity in the country.”
However, a number of local and international economists raised concerns that more money pumped in the cash stream bears risk of stoking inflationary pressures upward, as textbook economics show.
Espenilla said while cuts have already been enough for the year, there will be more to come next year to fulfill their goal of a single digit RRR in the medium term.
“This initiative can resume next year just as inflation returns to target based on our forecast. The goal of achieving single digit RRR by the end of my term is therefore quite attainable without sacrificing effective monetary control,” Espenilla told reporters.
Meanwhile, other economic managers also welcomed IMF’s assessment of the Philippines, where the global monetary authority retained its 6.7 percent growth forecast for the country this year.
“The IMF’s latest findings further underscore the urgency and importance of pursuing, with greater vigor, the administration’s economic agenda for sustained high growth and financial inclusion,” Department of Finance (DoF) Secretary Carlos Dominguez III said
“There will be no letup in the government’s policy of aggressive spending on infrastructure and human capital development while maintaining fiscal prudence, in step with President Rodrigo Duterte’s vision of reducing poverty incidence to 14 percent and transforming the economy into an upper middle-income one by 2022,” he added.
“The fiscal policy of the Philippines will continue to be prudent, sustainable, and supportive of our investments in public infrastructure and human capital development,” Department of Budget and Management Secretary Benjamin E. Diokno meanwhile said.