THE Bangko Sentral ng Pilipinas (BSP) announced on Thursday yet another cut in the deposit reserve requirement ratio (RRR), further bringing down the banks’ vaulted cash.
The Monetary Board’s decision to bring down the deposit requirement—or the portion of depositors’ balances that banks are asked to keep idle in the BSP’s vaults as reserves—effectively puts the Philippine banking industry’s RRR to 18 percent.
This RRR cut is the second slash since BSP Governor Nestor A. Espenilla Jr. took office in
July 2017.
A statement from the BSP on Thursday said the move is still part of their “gradual and phased” reduction in reserve requirement ratios.
The first cut in the requirement ratio of banks was announced in mid-February, just a few days after the BSP’s first monetary-policy meeting for the year.
The BSP also made clear that the reductions, past or future, in banks’ RRR are “calibrated” and “are not intended to signal any change in the prevailing monetary-policy stance,” all the while assuring that the BSP has the scope to offset their potential liquidity impact via an expansion in auction-based monetary operations.
“Shifts in the monetary-policy stance will continue to be signaled through adjustments in the policy rate, which will in turn continue to depend primarily on the BSP’s outlook for inflation as informed by economic data,” the BSP said.
Just two weeks ago, the BSP decided to hike its main policy rate by 25 basis points after about four years of keeping a neutral policy stance. The decision came in an effort to curb inflationary pressures down to the target range of 2 percent to 4 percent for the year and for 2019.
Since the BSP’s shift to the auction-based monetary operations under the interest-rate corridor framework in 2016, Espenilla—who was then deputy governor of the supervision and examination sector—was vocal on the need to bring down the banks’ RRR. But even at 18 percent, the Philippine banking industry’s RRR is still one of the highest in the region.
“These operational adjustments are part of the BSP’s shift toward a more market-based implementation of monetary policy that aims to gradually reduce the BSP’s reliance on reserve requirements for managing liquidity in the financial system,” the BSP said in its statement.
“The reduction in reserve requirements is also part of the BSP’s broad financial sector reform agenda to promote a more efficient financial system by lowering intermediation costs,” it added.
The BSP said the cut will take effect on the reserve maintenance period beginning on 1 June 2018.
Image credits: Carlo Gabuco/Bloomberg