MANILA -- Bangko Sentral ng Pilipinas’ (BSP) policy-making Monetary Board (MB) on Thursday cut by 200 basis points the reserve requirement ratio (RRR) of universal and commercial banks’ (U/KBs), down to 16 percent.
The cut, a decision made during the Board’s regular meeting, came exactly one week after the MB slashed the central bank’s key rates by 25 basis points due to the continued deceleration of inflation, with the April figure at 3 percent.
BSP Governor Benjamin Diokno, in a phone message, said the RRR cut will be implemented in three stages, specifically 100 basis points by May 31 and 50 basis points each by June 28 and July 26, 2019.
“For the other types of banks, the cut in RRR will considered in the next MB meeting,” he said.
Last year, the MB cut U/KBs’ RRR by a total of 200 basis points in line with the BSP’s bid to make monetary policy more market-based.
BSP Deputy Governor Diwa Guinigundo said the 200 basis points cut in banks’ RRR is estimated to release about PHP190 billion in the system.
“Future moves will depend on future data of system liquidity and inflation outlook,” he told PNA in a phone message.
Meanwhile, ING Bank Manila senior economist Nicholas Mapa, in a research note, said this is now the right time to cut banks’ RRR since inflation continues to post slower growth and the domestic economy registered slower expansion of 5.6 percent in the first quarter of the year.
“The gradual reduction in RRR will definitely help alleviate the current tight liquidity conditions and complements its (BSP’s) recent policy rate cut,” he said.
BSP data shows that domestic liquidity (M3) registered slower growth of 4.2 percent year-on-year last March from month-ago’s 7.1 percent.
Mapa said the RRR will address the slower M3 expansion.
“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,” he said.
The economist believes that Philippine monetary officials “will remain data-dependent and forward-looking as they look to safeguard price stability to achieve an environment conducive for economic growth.”
He explained that “moving forward, growth prospects appear to "point north" following the national budget's passage and all the more with slowing inflation and the recent BSP easing seen to drive both consumption and capital formation.”
“But for now, after priming its “pacemaker” for growth, the BSP’s move for a “transfusion” was welcome as it complements its previous policy rate cut,” he said, as he forecasts a growth of between 6 to 7 percent for the Philippine economy this year. (PNA)
