Thrift, rural bank reserve requirement cut

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THE MONETARY BOARD of the Bangko Sentral ng Pilipinas (BSP) on Thursday announced an expected reduction in thrift, rural and cooperative banks’ reserve requirement ratio (RRR) — a week after it did so for big banks and two weeks after it cut policy interest rates — releasing more funds for lending to further prod economic activity at a time of easing inflation and slowing gross domestic product growth that disappointed at a four-year-low 5.6% last quarter.

BSP Governor Benjamin E. Diokno told reporters in a mobile phone message: “This morning, the Monetary Board decided to cut the RRR for thrift, savings and cooperative banks.”

“For thrift banks, the RRR cut was by 200 bps from eight percent to six percent… : 100 bps effective May 31… 50 bps effective June 28… and 50 bps effective July 26…,” Mr. Diokno said.

“For rural and cooperative banks, the RRR was cut by 100 bps from five percent to four percent, effective May 31… The BSP will issue the necessary circular shortly.”

The MB had announced after its May 16 meeting a phased 200 bps cut in universal and commercial banks’ RRR to 16% from 18% currently, “to be implemented in three stages: 100bps effective May 31, 50bps effective June 28 and 50bps effective July 26.”

Current rounds of RRR cuts for all banks in the country follow a cumulative 200 bps cut in February and May last year that nevertheless left the requirements for thrift, rural and cooperative banks untouched.

BSP Deputy Governor Diwa C. Guinigundo on May 16 parried reporters’ questions on prospects for more RRR cuts, saying such a move “[d]epends on system liquidity in the near future and outlook on inflation” since it frees more funds for banks to lend to businesses and households, in turn spurring both economic activity and overall price increases.

“Exactly a week ago, the BSP cut the RRR of the biggest banks by a total of two percentage points or equivalent to about P190 billion in additional peso liquidity to be infused into the financial system (about P95 billion effective May 31… about P47 billion effective June 28… and about P47 billion effective July 26…),” Michael L. Ricafort, economist at the Rizal Commercial Banking Corp., told reporters in an e-mail.

Mr. Ricafort said the announced RRR cut for smaller banks “would be equivalent to about P22 billion additional peso liquidity to be infused into the financial system.”

“Thus the overall additional peso liquidity to be infused into the local financial system from any combined RRR cuts for all banks worth a total of at least P200 billion would be positive for both the Philippine economy and financial markets, in terms of greater economic activity/faster gross domestic product growth,” Mr. Ricafort explained.

Money supply growth eased further in March by the slowest pace in over six years. Domestic liquidity or M3, considered the broadest measure of money in an economy, grew 4.2% year-on-year to about P11.4 trillion in March, slower than the 7.1% expansion in February and 7.6% growth in January. This pace is also the slowest recorded since September 2012.

In an e-mail, Security Bank Chief Economist Robert Dan J. Roces said, “We see this as an alignment by the BSP after cutting large banks RRR last week.”

“The additional liquidity injection is, of course, a positive to economic growth, further propping-up aggregate demand and bringing down financial intermediation costs, thereby leading to better credit growth that should go into capital formation and consumption,” Mr. Roces explained.

Headline inflation eased for the sixth straight month from a nine-year-high 6.7% in September and October last year to a 16-month-low three percent in April — marking the third month in a row that the overall rise in prices of widely used goods fell within the BSP’s 2-4% target — taking the year-to-date pace to 3.6% against the central bank’s downward-revised 2.9% full-year forecast average for 2019.

In its third policy review for the year on May 8, the BSP partially dialed back a 175 bps cumulative increase in benchmark interest rates fired off in five meetings in 2018, adopting a 25 bps cut that brought down BSP’s overnight reverse repurchase rate to 4.5%, the overnight deposit rate to four percent and the overnight lending rate to five percent. — Reicelene Joy N. Ignacio