Manila: Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. said the central bank is eyeing a “substantial” reduction in banks’ reserve requirement ratio (RRR) this year.
“I have promised a cut in the reserve requirement. We’re considering it. We’ve discussed the timing of it. I would say it’s going to happen this year,” Remolona said in a briefing at the BSP head office in Manila on Wednesday.
“We will reduce reserve requirements substantially this year and then there may be further reductions by next year,” he added.
Reserve requirements refer to the percentage of bank deposits and deposit substitute liabilities that banks must set aside in deposits with the BSP which they cannot lend out.
In June last year, the RRR of universal and commercial banks and non-bank financial institutions with quasi-banking functions was slashed by 250 basis points to 9.5 percent.
Remolona earlier said the BSP wants to further bring down the RRR to as low as 5 percent.
“The banks want a reduction of the reserve re
quirement and they’re saying if you do reduce it, we’ll do this other thing for you, reduce transactions costs on payments, for example. We’re trying to manage that. But the idea is to reduce the reserve requirements in a substantial way,” he said.
Sought for comment on the impact of the RRR cuts to the economy, Remolona said the impact would not be immediate.
“Our transmission mechanism has long lags. That’s partly because the markets are not deep and liquid. We take account of those lags. At the same time, we’re trying to improve the liquidity of the markets to shorten those lags. But that’s an effort that will take some time,” he said.
BSP Assistant Governor the Monetary Policy Sub-Sector Zeno Abenoja, meanwhile, said the BSP is hoping that once the RRR is further reduced, the additional liquidity will be deployed for productive economic activities.
“If and when the reserve requirement is adjusted downwards, we are hoping additional liquidity will be deployed to help expand productive economic activiti
es. However, that will take time,” Abenoja said. (PNA)
Source: Philippines News Agency