MANILA: The Bangko Sentral ng Pilipinas (BSP) wants to reduce banks’ reserve requirement ratio (RRR) rate to 5 percent from the current 9.5 percent.
In a televised interview on Friday, Governor Eli Remolona Jr. said the BSP will likely cut policy rates first before putting on the table the cut on RRR.
He said earlier that the BSP might start easing policy rates during the Monetary Board’s meeting in August this year.
“My sense [is] it won’t be on the same meeting but we would like to reduce the reserve requirement by quite a bit because I think it’s distorting financial intermediation, but the timing is important,” said Remolona.
“We don’t want to do it while we’re still hawkish,” he added.
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, however, said this is “still one of the highest in the region.”
“I have only one vote but I would say we can reduce it to 5 percent,”
said Remolona.
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.
Sought for comment, Rizal Commercial Banking Corporation chief economist Michael Ricafort said the RRR cut will help boost economic activities.
“Any further cut in RRR could infuse more liquidity into the financial system in terms of more loanable funds for banks that could also reduce intermediation costs and help further spur loan growth and demand which, in turn, would help further stimulate more business and economic activities,” said Ricafort.
Ricafort reiterated that for every one-percentage-point cut in large banks’ RRR, an additional PHP146 billion will be infused into the banking system.
Source: Philippines News Agency