The Bangko Sentral ng Pilipinas (BSP) said a further reduction in banks’ reserve requirement ratios (RRR) is possible this year.
BSP Governor Eli Remolona said, however, than the easing of monetary policy is unlikely in the first semester.
The BSP in June 2023 slashed the RRR by 250 basis points or 2.5 percent for universal and commercial banks and non-bank financial institutions with quasi-banking functions or NBQBs, 200 bps or 2 percent for digital banks and by 100 bps or 1 percent for thrift banks, rural banks and cooperative banks.
The reduction brought the RRRs of universal and commercial banks and NBQBs from 12 percent to 9.5 percent: digital banks from 8 percent to 6.0 percent; thrift banks from 3 percent to 2 percent; and rural and cooperative banks from 2 percent to 1 percent.
Reserve requirements are the minimum reserves required for depository institutions. They are set by the central bank within limits specified by law. A change in the minimum reserve ratio affects the amount of its deposit base a financial institution can lend out.
Remolona, asked on the possibility of interest rates cuts in the first semester, said “I don’t know.”
“It depends on the data as we always say, but it’s looking good. We like the trend so far. I would say it’s possible, but maybe not likely,” he said.
The policy-making Monetary Board kept the overnight borrowing rate unchanged at 6.50 percent and the overnight deposit and lending facilities at 6.0 percent and 7.0 percent in its final meeting in 2023.
Former Finance Secretary Bemjamin Diokno earlier said the BSP might slash interest rates by up to 100 basis points by end-2024 on manageable inflation and global monetary policy adjustments.
BMI, a Fitch Solutions company, echoed Diokno’s projection as it anticipated a 75 bps interest rates cut by the second half of 2024. BMI said the possible rate cuts would be line with its expectations of the Federal Reserve’s adjustments.
Remolona also said that the country is “not out of the woods” in terms of inflation.
“Our baseline forecast for inflation in 2024 is around 4 percent or 4.2 percent. Not quite within range, but close to being within target. But supply shocks may derail that forecast including what’s going on with rice, the imports of rice. El Niño is a factor,” he said.
Inflation averaged 6 percent in 2023, faster than 5.8 percent in 2022. It was also higher than the target range of 2 percent to 4 percent for the year, but within the Development Budget Coordination Committee (DBCC) assumption of 5 percent to 6 percent.