The Bangko Sentral ng Pilipinas is expected to reduce the reserve requirement ratio of banks by at least 2 percentage points this year instead of weaking the policy rate to address the liquidity tightness in the financial system, Bank of the Philippine Islands said in a report.
BPI said in a market report that with the 6.5 percent to 7 percent growth momentum still intact and with demand remaining strong, the BSP might have a little reason to adjust its policy rate throughout 2019.
“After just hiking its policy rate by nearly 200 bps [in 2018], BSP will likely pick low hanging fruits before considering an RRP cut,” BPI said.
“To alleviate the liquidity challenges faced by the financial system, the BSP will likely prioritize cutting the reserve requirement ratio by 2 percentage points or more in 2019 over a policy rate cut,” the bank said.
The Monetary Board, the policy-making body of BSP, opted to keep the benchmark interest rates unchanged in its first policy meeting for the year on Feb. 7. Latest baseline forecasts showed that inflation would be settling within the target band of 2 to 4 percent for 2019 and 2020.