Bangko Sentral ng Pilipinas Governor Benjamin Diokno said Tuesday that another reduction in the reserve requirement of banks is possible before the end of the year.
Diokno said at the sidelines of The Asset Forum at Grand Hyatt Hotel in Taguig City that the adjustment in the RRR, which at 15 percent remains one of the highest in the region, remained on the table.
“We are currently looking at the data… If it is possible, why not?” Diokno told reporters.
“The WEO [World Economic Outlook] will come out in October. We have to look at different data so the possibility [of cutting the RRR] remains open,” Diokno said.
He said any move of further reducing the RRR”•whether by 300 basis points a year or 50 bps per quarter”•would depend on the inflation dynamics.
Diokno said, however, that the policy rates would likely stay the same in the fourth quarter. “We will not touch it… it is closed for the meantime… I think everybody is happy,” he said.
The policy-making Monetary Board of the BSP on Sept. 27 cut the reserve requirement ratios of banks by 100 basis points or one percentage point effective the first week of November 2019. The reduction would be applicable to all types of banks, such as universal/commercial, thrift and rural banks.
UKBs reserve requirement will now be 15 percent from 16 percent; thrift banks, 5 percent from 6 percent; and rural banks, 3 percent from 4 percent. The reduction in reserve requirements will also apply to
the deposits and deposit substitute liabilities in local currency of banks.
The Monetary Board said the cut in reserve requirements was in line with the BSP’s broad financial sector reform agenda to promote a more efficient financial system by lowering financial intermediation costs.
It said the adjustment in reserve requirement ratios was aimed at increasing domestic liquidity in support of credit activity.
The reduction came a day after the board cut the benchmark policy rates by another 25 bps to 4 percent on Sept. 26, amid the continued softening of consumer prices. The rates on overnight deposit and overnight lending were also reduced.
Latest data from the Philippine Statistics Authority showed that inflation in September slowed to a 40-month low of 0.9 percent from 1.7 percent in August on lower increases in the prices of food and non-alcoholic beverages.
This was the first time that inflation settled below 1 percent since the 0.9 percent in May 2016. The September print was also significantly slower than the peak of 6.7 percent a year ago.
This brought inflation in the first nine months to an average of 2.8 percent, below the midpoint of the target range of 2 percent to 4 percent for 2019.
Reserve requirement, also called cash reserve ratio, is a central bank regulation used by most central banks to set aside a minimum fraction of customer deposits and notes as reserves that cannot be lent out.