Monetary Board reduces reserve requirements anew

MANILA — The policy-making Monetary Board (MB) announced Thursday the reduction in the reserve requirement ratio by 1 percentage point as part of its broad medium-term financial market reform agenda.

The reduction will apply to those reservable liabilities of all banks and non-bank financial institutions with quasi-banking functions that are currently subject to a reserve requirement of 19 percent.

The move continues the Bangko Sentral ng Pilipinas’ (BSP) gradual and phased reduction in reserve requirement ratios that commenced in March 2018.

These operational adjustments are part of the BSP’s shift toward a more market-based implementation of monetary policy that aims to gradually reduce its reliance on reserve requirements for managing liquidity in the financial system.

The shift to the auction-based monetary operations under the interest rate corridor (IRC) framework has allowed the BSP to provide more effective guidance to short-term market interest rates, which should help facilitate healthy price discovery on the cost of funds in the financial system.

The reduction in reserve requirements is also part of the BSP’s broad financial sector reform agenda to promote a more efficient financial system by lowering intermediation costs.

Moreover, the MB reiterates that the calibrated reductions in reserve requirement ratios are not intended to signal any change in the prevailing monetary policy stance, as the central bank continues to have the scope to offset their potential liquidity impact via an expansion in auction-based monetary operations.

Shifts in the monetary policy stance will continue to be signaled through adjustments in the policy rate, which will in turn continue to depend primarily on the BSP’s outlook for inflation as informed by economic data.

The reduction in the reserve requirement ratios shall take effect on the reserve maintenance period beginning on 1 June 2018.