Bangko Sentral cuts RRR by 200 bps

Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Thu, 16 May 2019 17:22:53 +0000

THE central bank has resumed reducing banks’ reserve requirement ratio (RRR) on Thursday, with monetary authorities ordering a 200-basis-points (bps) cut on the 18-percent liquidity-mopping tool.

“The Monetary Board decided today (Thursday) to reduce the RRR by 200 bps — from 18 percent to 16 percent to be implemented in three stages…” Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno announced in a message to reporters.

An initial 100-bps reduction will take effect on May 31, followed by a 50-bps cut on June 28 and another 50-bps decrease by July 26.

The Bangko Sentral chief stressed, however, that “this new policy will apply to universal and commercial banks only.”

The reserve-requirement cut for other types of banks, he said, will be considered in the next meeting of the BSP’s policymaking Monetary Board.

The RRR is the proportion of current deposits that banks need to keep with the central bank against the sum they can loan out to borrowers.
Monetary authorities’ latest action on the operational tool followed the 1-percentage-point cuts to the ratio in February and May last year, totaling to 200 bps.

The Bankers Association of the Philippines (BAP) lauded the move, calling it “a complimentary boost to our national economy, with inflation slowing down to a 16-month low.”

“The 2-percent cut in reserve requirements recognizes the BSP’s effectiveness in strengthening the country’s banking system,” BAP President Cezar Consing said in a statement.

“It is a bold move, coming on the heels of a policy rate cut, but equally appropriate, given how our financial system has advanced under the BSP’s stewardship,” he added.

The group said it was “optimistic that the RRR reduction, together with easing of policy rates, will sustain the growing economic momentum of the Philippines,” and is “confident that the Bangko Sentral will continue to exercise its regulatory role effectively as catalyst to bolster economic growth and consumer confidence in the banking industry.”

For his part, ING Bank Manila senior economist Nicholas Antonio Mapa said “the gradual reduction in RRR will definitely help alleviate the current tight liquidity conditions and complements its (central bank) recent policy rate cut.”

“With liquidity conditions tight, as evidenced by seven months of single-digit M3 growth and multiyear high time deposit rates, the BSP looked to finally address the lack of funds circulating in the system,”he added.

“Deploying the appropriate tool to address specific ailments was key in this round of decisions, despite being tempted to deploy one tool to address all concerns,” the economist said.

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