THE BANGKO SENTRAL ng Pilipinas (BSP) will monitor how banks will respond to the pre-announced reserve requirement ratio (RRR) reductions taking effect next month, an official said.

BSP Monetary Board Member Bruce J. Tolentino told reporters on the sidelines of an event on Tuesday organized by the Bankers Institute of the Philippines (BAIPHIL) that the central bank will look into how banks respond immediately after the first week of the implementation of the third round of RRR cuts this year.

“Let’s see what the RRR cuts will actually produce after the first week. Given the advance time that the banks were given, they should be able to act on it as soon as the RRR cut is effective,” he said, noting that the BSP will be checking data right away.

“We already did a major move forward by pre-announcing an RRR cut [for the] first week of November….We did it in advance so that there’s no surprise, all the banks can adjust to it,” Mr. Tolentino said.

“Hopefully, they will find customers for the additional liquidity. So that, we hope, will settle things down as we push forward with additional fiscal expenditures on Build, Build, Build projects,” Mr. Tolentino said.

BSP Governor Benjamin E. Diokno earlier said the central bank may consider another RRR cut after the cumulative 300-bp reduction for the year thus far, depending on relevant data expected to be released next month and in December.

The BSP announced last month that it will reduce lenders’ RRR by another 100 bps effective November to bring the reserve requirement of universal and commercial banks to 15% from 16%. The reserve ratios of thrift banks will also be cut to five percent from the current six percent, and to three percent from four percent for rural and cooperative banks.

The central bank last week said it will likewise cut the RRR for bonds issued by banks and quasi-banks to three percent, down by 300 bps from the current six percent, effective next month.

It said the move is “part of its commitment to contribute to deepening of the local debt market.”

Domestic liquidity or M3, the broadest measure of money supply in an economy, grew 6.2% year on year to P11.9 trillion in August, slowing from the 6.7% growth logged in July. Month on month, money supply inched up by 0.3%.

Net claims on the central government rose 2.1% year on year, a reversal of the 1.8% decline seen in July. Meanwhile, domestic claims, which were mainly supported by the sustained growth in credit to the private sector, climbed 6.2% in August, faster than the upward-revised 5.8% in July.

The central bank said loans for production activities continued to be driven by credit to key sectors such as real estate activities; financial and insurance activities; electricity, gas, steam and air-conditioning supply; construction; and wholesale and retail trade, repair of motor vehicles and motorcycles.

Meanwhile, net foreign assets in peso terms jumped 8.9% year on year in August, quickening from the 5.8% pace seen in July. The BSP said this was driven by foreign exchange inflows coming mainly from overseas Filipinos’ remittances and business process outsourcing receipts.

Bank lending also decelerated in August due to slower growth in loans for production activities.

Outstanding loans of universal and commercial banks grew 10.5% year on year in August, slowing from the 11.1% pace logged in July. Inclusive of reverse repurchase agreements, bank lending grew 10% in August from 10.7% the preceding month.

“Going forward, the BSP will continue to ensure that the expansion in domestic credit and liquidity remains consistent with the BSP’s price and financial stability objectives,” the central bank said. — LWTN