MANILA – ANZ Research projects that the 400 basis points reduction in banks’ reserve requirement ratio that the Monetary Board (MB) authorized Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno to implement this year, will be maximized.
This, even as monetary officials on Thursday discounted the need to cut banks’ RRR to date, given the ample domestic liquidity environment, as well as the need to reduce the BSP’s key policy rates after a total of 175 basis points reduction since the start of the year.
In a report dated August 20, 2020, ANZ Research said Philippine monetary officials’ decision to keep the central bank’s key rates steady is as expected, but it noted BSP’s commitment to further support the domestic economy.
“In our view, the current pace of recovery warrants further monetary policy support although it could come in the form of a cut in the reserve requirement ratio (RRR),” it said.
The BSP has so far reduced universal and commercial banks (U/KBs) RRR by 200 basis points and thrift banks (TBs) and rural and cooperative banks’ (RCBs) RRR by 100 basis points, both of which are targeted to flush additional liquidity into the system to support economic activities.
The BSP’s overnight reverse repurchase (RRP) rate is currently at 2.25 percent, the overnight lending rate is at 2.75 percent, and the overnight deposit rate is at 1.75 percent.
On Thursday, BSP Governor Benjamin Diokno said the MB’s decision to hold the central bank’s key policy rates steady was made after noting that inflation rate remains within target despite the hike in the average inflation forecast for this year until 2022 and that growth, both domestic and global, remains weak due to the pandemic.
BSP’s inflation forecasts have been revised upwards to 2.6 percent, 3 percent, and 3.1 percent for 2020-2022 from 2.3 percent, 2.6 percent, and 3 percent previously, respectively.
This decision was made after the June and July 2020 inflation rates rose, a change from the deceleration since the start of the year.
Diokno, however, said the balance of risks on the inflation outlook is tilted on the downside due to the pandemic’s economic impact on both the global and domestic activities.
He also said early signs of recovery are slowly showing up after movement restrictions have been eased.
Growth, as measured by gross domestic product (GDP), contracted by 0.7 percent in the first quarter this year and by 16.5 percent in the second quarter, which authorities traced to the strict quarantine measures implemented from the middle of March to end of April in mainland Luzon and until end-May for the National Capital Region (NCR), to arrest the rise of coronavirus disease (Covid-19) infections.
To help buoy the economy, the BSP reduced key policy rates and banks’ RRR to encourage banks to lend more and fund economic activities.
Diokno said the MB’s latest decision was made to allow the impact of the earlier monetary policy decisions to fully make its way into the economy. (PNA)
