MANILA — A cut in Philippine banks’ reserve requirement ratio (RRR) will boost financial institutions’ ability to expand their lending operations to further help the vibrant domestic economic activities.
To date, universal and commercial banks (U/KBs) are required to have a 20 percent RRR, which is the share of depositors’ balances that banks need to place with central bank in the form of either cash or other liquid assets.
Banco De Oro (BDO) treasurer Pedro Florescio said a cut in the RRR is important since it will allow banks to extend more loans.
“Lowering the RRR will allow banks to boost its lending capacity providing a continuous supply of credit for consumers and businesses,” he said.
Economists have been projecting a cut in the RRR since the central bank’s policy-making Monetary Board (MB) has been maintaining its key rates for a long time despite the rise in inflation rate.
The last time the BSP adjusted the RRR was in May 2014 when it was hiked by a percentage point to 20 percent for universal and commercial banks (U/KBs).
That year, the BSP hiked RRR by a total of 50 basis points, 25 basis points in March and May, as growth of domestic liquidity grew stronger than in the past years at a level of more than 20 percent.
Economists have been penciling in an RRR cut because it is among the highest in the region.
Recently, BSP Governor Nestor Espenilla Jr. said a cut in the RRR to single digit is an option to release more liquidity in the system since this is needed by the economy.
Projections said a cut in RRR will release about PHP700 billion in the economy in the medium term.
BPI Treasurer Antonio Paner said releasing additional liquidity this time will have limited impact on inflation “because the reduced cost of funds will help reduce cost push inflation.”
“We are confident that the BSP is equipped to manage the impact on price changes as there are other monetary tools that can be used,” he added.