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BSP chief signals more RRR cuts ahead

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By SIEGFRID ALEGADO and DITAS LOPEZ
(Bloomberg)

The Bangko Sentral ng Pilipinas (BSP) will consider reducing the Reserve Requirement Ratio for lenders further if banks don’t misbehave and speculate against the peso, Governor Benjamin Diokno said.

 

MB file

MB file

BSP will “closely look at how banks will use funds freed up by RRR cut,” Diokno told a forum in Manila on Friday, a day after announcing a 2 percentage-point reduction in the funds that large banks must hold in reserve. “Proper use will encourage further cuts and speculation will do otherwise.”

The reserve ratio will be lowered in three stages: To 17% from 18% on May 31, then to 16.5% on June 28 and 16% on July 26. The move follows a 25 basis-point reduction in the benchmark interest rate, providing more stimulus to the Philippine Asian economy after it grew at the slowest pace in four years in the first quarter.

Diokno, who took office in March, is following through on a pledge by his predecessor, the late Nestor Espenilla, to bring down Southeast Asia’s highest reserve ratio to single digits by the middle of 2023. The move should help ease a liquidity crunch after money supply grew at the slowest pace in more than a decade at 4.2% in March. Loan growth was the lowest since 2015 in the same month.

The Monetary Board initially planned to implement a series of four cuts of 50 basis points each but decided to move more aggressively “to reduce speculation and allow bankers to prepare,” Diokno told the Italian Chamber of Commerce. “There is no point in postponing what should be done anyway.”

The peso fell 0.1% to 52.55 per dollar at 11:47 a.m. in Manila on Friday as some analysts bet on an additional 180 billion pesos ($3.4 billion) in the financial system by the end of July from the RRR cut. The benchmark stock index rose the most among Asian markets, gaining as much as 2.2%.

“I like this new governor of the BSP – he is like the governator,” Trinh Nguyen, senior economist at Natixis Asia Ltd., wrote on Twitter after Diokno said there’s no point delaying what must be done. “Decisive. I like.”

For Carel Halog, senior vice president at the Land Bank of the Philippines, the reserve ratio cut is a step in the right direction. “It’s very timely and a welcome relief for banks. It will help lower intermediation cost and encourage lending.”

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