RRR cut in Q4 possible

Further reductions in the banks’ deposit reserves are expected in the fourth quarter this on the basis of such developments as the latest 1.7 inflation print in August, private sector economists said.

ING Bank senior economist Nicholas Mapa forecasted a 100-basis point (bps) cut on the banks’ reserve requirement ratio (RRR) likely imposed in the final three months of the year, which he expects to be accomplished in tranches.

“We expect the Bangko Sentral ng Pilipinas (BSP) to roll back the RRR by 100 bps in the fourth quarter. Diokno has telegraphed his moves effectively and he indicated that the next RRR redux will be announced per quarter,” Mapa said.

“We expect him to reduce RRR in two tranches of 50bps, possibly at the end of October and end of November,” he added.

Likewise, Rizal Commercial Banking Corp. lead economist Michael Ricafort held the same view, saying the rate cuts were to “happen anytime soon.”

HSBC economist Noelan Arbis similarly said the same given his own assessment of current domestic liquidity conditions in the country.

“We expect the BSP’s next move to be a 100-basis point cut to the RRR in light of recent data which suggest that domestic liquidity remains relatively tight. The BSP, for instance, cut its term deposit facility offerings by half to P40 billion on 4 September due to weak demand,” Arbis argued.

Union Bank of the Philippines chief economist Carlo Asuncion provided a more conservative outlook and expected the BSP to keep the current RRR levels unchanged till the end of the year.

“No RRR cut. It may happen next year yet,” Asuncion said in a text message.

Earlier, BSP Governor Benjamin Diokno announced the Monetary Board (MB) will lower the policy rates by another 25bps this year, a development that analysts anticipate will happen during the 26 September rate-setting meeting.

Also, Diokno earlier hinted of the likelihood of further monetary easing measures without specifying whether the easing will come ahead of behind the deposit reserves adjustment.

“There is still an RRR cut. I just don’t know by how much. It’s a live issue. We have a late September meeting regarding the policy cut. It could be before, or could be after. We’ll just look for the data,” Diokno said.