By Lee C. Chipongian
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the Monetary Board approved to reduce banks’ reserve requirement ratio (RRR) by a cumulative 200 basis points (bps) staggered in the next two months.
“The Monetary Board decides today to reduce the RRR by 200 bps — from 18 percent to 16 percent to be implemented in three stages: 100bps effective May 31;50bps effective June 28; and 50bps effective July 26,” according to Diokno.
He said the RRR cut will only apply to big banks, or the universal and commercial banks. “For the other types of banks, the cut in RRR will be considered in the next Monetary Board meeting,” said Diokno.
The central bank has tabled the RRR cut proposal in this week’s regular Monetary Board meeting, which was disclosed by Diokno during the briefing on the BSP’s latest policy stance.
BSP Deputy Governor Diwa C. Guinigundo said last week that they will consider any RRR action as both an operational adjustment and as monetary policy move.
The market has been expecting the BSP to tweak RRR again this year, and as early as February, banks have been anticipating a cut which will be similar to 2018’s 200 bps reduction.
The Monetary Board last May 9 decided to cut benchmark rates by 25 bps, signaling to the market that they could follow it up with the expected RRR action.
The last time the BSP cut the overnight reverse repurchase rate or RRP by 25 bps was October 2012. The RRR was reduced by 100 bps March 2018, and again by 100 bps May of last year. A 100 bps or one percentage point reduction in RRR releases about P90 billion to P95 billion of liquidity into the financial system.
Guinigundo said that theoretically, the fresh liquidity could be placed in the BSP’s auction-based term deposit facility or TDF, or the BSP could issue its own bonds which it was now allowed to under its amended BSP charter.
Guinigundo said banks could also use the liquidity to buy US dollars, or lend it out to corporates or individuals, or the place it in the Bureau of the Treasury’s retail treasury bonds.