THE Philippine central bank may still lower the banks’ reserve requirement ratio (RRR) before the end of the year.

Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla on Friday said they are still deciding if the RRR will be cut right before the rule that allowed bank lending to small businesses to be considered as compliance to the requirement expires in December.

“We are still deciding if right before or simultaneous. We don’t necessarily want to tighten. On the other hand, one solution is to extend the reserve eligibility and do nothing,” he told reporters.

The BSP earlier committed to bringing down the RRR of big banks to single digits by 2023.

During the pandemic, the BSP allowed lenders to count their lending to micro, small, and medium enterpises and pandemic-hit large enterprises as part of banks’ alternative compliance with the RR against deposit liabilities and deposit substitutes until the end of 2022.

The BSP also reduced the RRR for banks in March 2020 to cushion the impact of the pandemic on the economy.

The RRR for big banks is currently at 12%, one of the highest in the region. Reserve requirements for thrift and rural lenders are at 3% and 2%, respectively

“We will have a cut of RR that offsets the (cessation) of the reserve eligibility. So people should not read the RR cut as a monetary policy, it’s just a compensation for getting rid of a relief,” Mr. Medalla said.

A cut in RRR is a move intended to be an operational adjustment to facilitate the BSP’s shift to market-based instruments for managing liquidity in the financial system, particularly the term deposit facility and the BSP securities.

“The adjustments in the reserve requirements are meant to be not indicative of any change in the monetary policy stance but it will be an operational adjustment,” BSP Deputy Governor Francisco G. Dakila, Jr. earlier said at a press conference on July 14.

Dennis D. Lapid, director of the BSP’s Department of Economic Research, has also said if the BSP decides to reduce the RRR and release additional liquidity into the financial system, the central bank will have the ready facilities to mop up excess money supply. 

Mr. Lapid had noted that with the ongoing exit from monetary accommodation, BSP’s liquidity-mopping operations are now being geared towards increased liquidity absorption.

The BSP raised its benchmark rates by 75 basis points (bps) in an off-cycle move on July 14. The Monetary Board has raised policy rates by a total of 125 bps this year. — KBT