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Friday, March 29, 2024

BSP cuts other banks’ reserve requirements

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The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas, expanded the coverage of the reduction in reserve requirements by including a uniform reserve requirement of 4 percent on the long-term negotiable certificates of time deposit issued by all banks and non-bank financial institutions with quasi-banking functions.

“At its meeting on May 23, the Monetary Board complemented the reduction in  reserve requirements for universal and commercial banks with a phased 200-basis-point reduction in the reserve requirements for thrift banks and non-bank financial institutions with quasi-banking functions as well as a 100-basis-point reduction for demand deposits and now accounts of rural and cooperative banks to be effective on May 31, 2019,” the board said in a statement Wednesday.

“Moreover, long-term negotiable certificates of time deposit issued by all banks and NBQBs will have reduced and uniform reserve requirement ratio of 4 percent,” it said.

LTNCD is a bank product issued by local banks and offered to investors looking for a relatively safe investment asset. Compared to a regular savings account or short-term time deposit, LTNCDs offer much higher interest rates. As an investment instrument, LTNCDs are very similar to time deposits and bonds. 

The reductions on reserve requirements will take effect for universal/commercial banks, TBs and NBQBs beginning May 31, 2019, June 28, 2019 and July 26, 2019, respectively.

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The lower ratios will apply to all reservable liabilities except bonds and mortgage/chattel mortgage certificates as the BSP continues to assess the impact of a reduction in the reserve requirements on said instruments. 

The BSP is currently reviewing its existing framework on reserve requirements to align the regulations on deposit substitutes with the provisions of the amended BSP Charter.

“The resulting operational refinements will support the BSP’s medium-term objectives of enhancing the effectiveness of monetary policy and deepening the domestic money market,” the Monetary Board said.

Reserve requirement, also called cash reserve ratio, is a central bank regulation that sets the minimum fraction of customer deposits and notes that each bank must hold as reserves.

The BSP cut the RRR of universal and commercial banks by a total of 2 percentage points which would unleash about P190 billion in additional peso liquidity.

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