Economists see reduction in reserve requirement ratio


Economists are now looking at the possible reduction in banks’ reserve requirement ratio (RRR) as early as June this year after the Bangko Sentral ng Pilipinas (BSP) kept its key rates steady on Thursday.

BSP policy-making Monetary Board (MB) maintained the central bank’s key rates after citing the deceleration of domestic inflation rate, with the April 2023 level at 6.6 percent, down from the 14-year high of 8.7 percent last January.

BSP Governor Felipe Medalla noted the need to cut the RRR because the relief measures that allowed banks’ lending to small and medium enterprises (SMEs) as qualified RRR compliance will mature in June.

Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort, in a report, said market players are now considering a possible RRR reduction by June after the hint from the central bank.

This, he said, is among “the options to ease monetary policy other than a local policy rate cut especially if there is no Fed (Federal Reserve) rate cut yet by then.”

He forecasts the next possible adjustments in the central bank’s key rates “as early as August 2023/second half of 2023 if inflation eases further and if the Fed starts to cut rates by then amid signals to maintain the interest rate differential at 100 basis points to help stabilize the peso exchange rate and overall inflation.”

“Local policy rates would still be largely a function of future Fed rate moves (pause or cut) as well, fundamentally, the local inflation trend, and the behavior of the peso exchange rate, which affects import prices and overall inflation,” he said.

The last adjustment in the RRR was made in 2020 when it was slashed by 200 basis points to 12 percent for the universal and commercial banks (U/KBs), one of the highest in Asia.

RRR is the proportion of the deposits that a financial institution must hold in reserve’s as cash to have the available liquidity needed in case of sudden withdrawals.


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