Further liquidity surge in 2020 seen

Additional liquidity by way of further cuts in the deposit reserves for banks might still be expected for 2020 as the Bangko Sentral ng Pilipinas (BSP) was expected to take up a similar aggressive stance it held for 2019.

This was learned from Sun Life Philippines (SunLife) chief investments officer Michael Enriquez as he pegged a reduction of reserve requirement ratio (RRR) to reach a total of 400 basis points by 2020, mirroring the same figure the central bank slashed for such this year.

“Next year, probably 300 (basis points), 1 per quarter or possibly four, making it 400 basis points. Governor (Diokno) wants a single digit (RRR) by the end of his term but I think it will depend on how the economy can absorb the additional liquidity,” Enriquez said.

According to him, even with the significant reduction in bank deposit reserves this year, banks are still struggling with lending to corporates, thus, the presence of better yielding securities to attract more cash in their coffers.

“In spite of the 400-basis point cut, the banks continue to be very tight in liquidity that’s why you can see more attractive time deposits to attract more depositors, more cash. The economy is growing and they need to deploy (cash),” he explained.

“A lot of corporations are asking for loans and they can’t deploy it because they don’t have cash. Now, additional liquidity can enable this corporations to borrow more to expand because if the government starts to spend, you would see corporations (to) start borrowing and spending as well for expansion,” he added.

In terms of mopping up excess liquidity should such arise, the analyst said that the BSP is well-equipped and has the necessary tools in its arsenal to control the cash in the system.

Meanwhile, the SunLife executive shrugged off the possibility of another cut on 12 December rate-setting meeting, as the acceleration in November inflation might prompt it.

“No cut for December. The BSP was hinting on the possibility but our own house view is that they will resume by next year,” Enriquez said.

“25 (basis points) for next year. It was already reduced by 75 basis points. During the peak of inflation, the BSP brought up rates by a 100 basis points, so one more will bring it back to the level prior to high inflation,” he added.

To recall, BSP Governor Benjamin Diokno reopened the possibility of another policy cut, but held firm that such decision will remain data dependent and aligned with their primary mandate of securing price stability.