BSP cuts banks’ reserve requirement ratio

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    The Monetary Board yesterday reduced by another percentage point the reserve requirement ratio (RRR) of universal and commercial banks to 14 percent and thrift banks to 4 percent beginning December.

    RRR for non-bank financial institutions with quasi-banking functions (NBQBs) were also reduced by 1 percentage point to 14 percent.

    Benjamin Diokno, Bangko Sentral ng Pilipinas governor, said the reduction will apply to the “deposits and deposit substitute liabilities in local currency of banks and NBQBs.”

    “The reserve requirement reduction is in line with the Bangko Sentral ng Pilipinas’ broad financial sector reform agenda to promote a more efficient financial system by lowering financial intermediation costs,” Diokno said.

    “At the same time, the adjustment in reserve requirement ratios is aimed to ensure sufficient domestic liquidity in support of economic activity.”

    The latest cut follows a 100 bps reduction announced in September to take effect in November and a 200-bps phased cut from May to July.

    In reducing the reserve requirement ratios, the Monetary Board reaffirms the BSP’s commitment to gradually lessen its reliance on reserve requirements for managing liquidity in the financial system.

    The Monetary Board believes the BSP has attained sufficient progress in its shift towards the use of market-based monetary instruments since the adoption of the interest rate corridor (IRC) framework in June 2016.

    Diokno has repeatedly said the RRR will be at a single digit level by the time he ends his term as governor in 2023.

    RRR refers to the percentage of bank deposits and deposit substitute liabilities that banks must set aside in deposits with the BSP which they cannot lend out, or where available through reserve-eligible government securities.

    Reservable liabilities include demand, savings, time deposit and deposit substitutes including long-term non-negotiable tax-exempt certificates of time deposit or LTNCTDs.

    Analysts said changes in reserve requirements have a significant effect on money supply in the banking system, making them a powerful means of liquidity management by the BSP.

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