THE Bangko Sentral ng Pilipinas (BSP) has cut banks’ reserve requirement ratio (RRR) for the fourth time this year, with the latest reduction to take effect in December.
In a statement on Thursday, the BSP said its policy-setting Monetary Board (MB) decided to slash the RRR of universal, commercial and thrift banks by another 100 basis points (bp), bringing total reductions to their reserve ratios for this year to 400 bps.
The MB said the cut will also apply to the reserve ratio of non-bank financial institutions with quasi-banking functions (NBQBs).
“The reduction in reserve requirements will apply to the deposits and deposit substitute liabilities in local currency of banks and NBQBs,” the central bank said. “The reduction will be effective on the first day of the first reserve week of December 2019.”
This latest cut will follow a 100-bp reduction in all banks’ RRR announced on Sept. 27 which takes effect next month and will bring the reserve ratio of universal and commercial lenders to 14% by December, while the RRR of thrift banks will stand at four percent.
Meanwhile, the reserve ratio of rural banks, which will go down to three percent next month, was untouched.
On the other hand, the reserve ratio of NBQBs will be cut to 14% by December.
“The reserve requirement reduction is in line with the BSP’s broad financial sector reform agenda to promote a more efficient financial system by lowering financial intermediation costs,” the BSP said.
“At the same time, the adjustment in reserve requirement ratios is aimed to ensure sufficient domestic liquidity in support of economic activity.”
BSP Governor Benjamin E. Diokno has vowed to bring down big banks’ RRR to single digit before the end of his term.
Analysts said the latest RRR cut will bode well for loan growth and financial markets, and will provide support against local and global headwinds.
“I think the decision to cut RRR is a proactive and timely one that should help mitigate the impact of global headwinds and this year’s public sector underspending on our GDP (gross domestic product) performance. This should also increase the probability of Philippine GDP getting back to the 6-7% range by next year,” Bank of the Philippine Islands Inc. Lead Economist Emilio S. Neri said in a text message.
The reserve ratio reduction will also give the central bank policy space and boost loan growth, said Security Bank Corp. Chief Economist Robert Dan J. Roces.
“Further cuts to the RRR as announced will have positive impact as the BSP nudges loan growth and liquidity while leaving enough policy space in the RRP (reverse repurchase) to support growth momentum in 2020. It is also seen as part of wider efforts to help businesses and consumers weather a slowdown as a fallout from global weakness,” Mr. Roces said in a text message.
Multilateral lenders have trimmed their growth forecasts for the Philippines amid continued global headwinds and the government’s underspending earlier this year due to budget delays.
The International Monetary Fund further downgraded its growth outlook for the country to 5.7%, down from the six percent outlook in July, the 6.5% forecast in April and the 6.6% and 6.7% given in October and September 2018. It also trimmed its 2020 GDP growth forecast to 6.2%.
In September, the Asian Development Bank also slashed its GDP growth outlook to 6.2% from the 6.4% it penciled in an April report.
Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the fresh round of RRR cuts will boost liquidity and support the market.
“The surprise cut in RRR by one percentage point effective December 2019 could support sentiment on the local financial markets. However, more pesos infused into the financial system could also lead to more supply of pesos, some of which could find their way into the forex market,” Mr. Ricafort said in a text message.
He said the December 100-bp RRR reduction is expected to release about P110 billion in liquidity to the financial system. — Luz Wendy T. Noble
