ING Bank Manila expects the Monetary Board of the Bangko Sentral ng Pilipinas to reduce the reserve requirement of banks in its meeting this week, saying this move will address the current tight liquidity condition.
ING Bank Manila senior economist Nicholas Mapa said in a report Monday if the reduction would not happen this week, it might be announced during an off-cycle meeting later this month.
“Given the relatively tight liquidity conditions in the market, with M3 growth grinding to single-digit growth for five months and with the settlement of the recent RTB [retail treasury bonds] siphoning off roughly P200 billion from the market, the BSP may look to address the current tightening conditions with a RRR cut, announced either at the March 21 meeting or at an off-cycle meeting on the 28th,” Mapa said.
He said another evidence of tightening liquidity conditions would be the price of money with short-term time deposit rates now as high as 4.794 percent.
“The timing will be determined on whether Governor [Benjamin] Diokno reverts to viewing adjustments to the RRR as a policy move or a procedural adjustment. This may also be given attention given Diokno’s recent comments that he would like to bring forward RRR cuts to carry on the reforms started by the late Governor (Nestor) Espenilla,” Mapa said.
Mapa said he was not expecting a policy cut on the March 21 meeting because this could happen in May.
Diokno earlier said the Monetary Board would continue to be data-dependent in deciding when to resume the reduction in reserve requirement ratios of banks which is one of the highest in the region.
The reserve requirement or cash reserve ratio is a central bank regulation employed by most central banks that sets the minimum amount of reserves that should be held by a commercial bank.
The Monetary Board made a one-percentage-point cut in the reserve requirement of banks from 20 percent to 19 percent in February 2018.
The board said the operational adjustment would support the Bangko Sentral’s shift toward a more market-based implementation of monetary policy and its broad financial market reform agenda.