Daily Tribune‘The BSP reiterates its long-run goal of enabling banks to channel their funds more effectively toward productive loans and investments.’
Bangko Sentral ng Pilipinas
Photograph courtesy of BSP
The Bangko Sentral ng Pilipinas (BSP) is considering reducing the reserve requirement ratios (RRR) next year as it focuses on better managing the country’s liquidity.
“That may come next year because we’re trying to make the yield curve more reliable, which means managing liquidity better,” BSP Governor Eli Remolona Jr. said last Friday in a meeting with the media at the BSP Main Office in Malate, Manila City.
A lower RRR allows banks to lend more funds to their clients at cheaper costs.
“The BSP reiterates its long-run goal of enabling banks to channel their funds more effectively toward productive loans and investments,” BSP said in a statement.
“Reducing RRRs will lessen frictions that hinder financial intermediation,” the Central Bank added.
In February this year, the BSP ordered banks to reduce their RRR starting on 28 March.
The ratio for the universal and commercial banks eased to 5 percent from 7 percent.
Non-bank financial institutions and quasi-banks lowered their ratio to 5 percent.
Meanwhile, digital banks are reducing their RRR to 2.5 percent, while thrift banks’ ratio already stands at 0 percent.
Security Bank chief economist Angelo Taningco said the BSP might relax the ratio for universal and commercial banks next year by 200 basis points to 3 percent.
He said this will infuse P325 billion into the economy.
Taningco said the BSP will likely cut the RRR gradually to prevent inflation rates from spiking due to excessive household consumption.
“More liquidity means higher inflation, so the BSP needs to strike a balance in managing prices of goods and services and driving economic growth,” he said.
The BSP issues BSP bills or debt papers with short maturity periods to banks and other financial institutions to absorb excess liquidity.
During the BSP bills auction last Friday for 28-day and 56-day papers, the Central Bank accepted P110 billion from the total bids of P157.049 billion, which was higher than the P152.319 billion recorded in the prior week.
In the longer term, Taningco said the BSP might further cut the big banks’ RRR by 150 basis points each in 2027 and 2028, bringing it to 0 percent.
