THE central bank stands ready to ease monetary policy, but views current money supply as ample and is gauging when the financial system can absorb extra liquidity, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said.

The Monetary Board has slashed 200 basis points (bps) out of the 400 bps it is authorized to reduce this year to add liquidity into the financial system during the pandemic. This has lowered the reserve requirement ratio (RRR) for universal and commercial lenders to 12% while the RRR for thrift and rural banks have been maintained at 4% and 3%, respectively.

“RRR cut, if ever, will be for big banks. The RRR for thrift and rural banks are already low and they would benefit the most from (Monetary Board) policy that considers new lending to MSMEs (micro, small, and medium-sized enterprises) as in compliance with reserve requirements,” Mr. Diokno said in a text message to BusinessWorld Monday.

The central bank has allowed banks to include their lending to small businesses as well as large enterprises as an alternate means of reserve compliance during the pandemic.

So far, the BSP said P45 billion worth of loans to MSMEs has been used by banks, most of which rural lenders, to comply with reserve requirements.

Earlier this month, the Chamber of Thrift Banks said it is pushing for a further 100 basis-point reduction to the sector’s current reserve requirement of 4%, saying that a decrease signifies additional billions of pesos in liquidity that could be utilized to provide credit for embattled sectors.

Mr. Diokno said there is “ample liquidity” in the market currently.

He added the monetary authorities can afford to bring down the reserve requirement for big banks to 10% “if there’s a need for it.”

“We’re just pausing to make sure that the financial sector is able to digest all these monetary easing that we’ve done,” Mr. Diokno said in an interview with ABS-CBN News Channel early Monday.

The central bank has also brought down policy rates to record lows through 175-bps worth of easing this year. Its latest 50-bps rate cut in June trimmed the overnight reverse repurchase, lending, and deposit facilities to 2.25%, 2.75%, and 1.75%, respectively.

The uptick in the savings rate is an indication of improvement in liquidity, according to Security Bank Corp. Chief Economist Robert Dan J. Roces.

BSP data showed the savings growth rate inching up during the pandemic. Savings deposit growth was 13.4% in May from 11.9% in January.

“Money saved is money not spent, so a higher savings rate could also mean less consumption but high liquidity,” he said in a text message.

“For consumers facing uncertainties, the lower interest rates may not necessarily help in the near term and they will opt to save. But since borrowing costs are lower, this should become attractive over the longer term,” Mr. Roces added.

Domestic liquidity or M3 rose 16.6% year on year in May from 16.2% in April. Despite this, growth of outstanding loans growth issued by universal and commercial banks was 11.3% in May, against 12.7% in April. — Luz Wendy T. Noble