The Monetary Board of the Bangko Sentral ng Pilipinas cut on Friday the reserve requirement ratios of banks by 100 basis points, or one percentage point, effective the first week of November.
The board in a statement late Friday the reduction was applicable to all types of banks, such as universal and commercial, thrift and rural banks.
The reserve requirement of universal banks will now be 15 percent from 16 percent; thrift banks, 5 percent from 6 percent; and rural banks, 3 percent from 4 percent.
“The reduction in reserve requirements will apply to the deposits and deposit substitute liabilities in local currency of banks,” the board said.
“The cut in reserve requirements is in line with the BSP’s broad financial sector reform agenda to promote a more efficient financial system by lowering financial intermediation costs,” it said.
At the same time, it said the adjustment in reserve requirement ratios was aimed at increasing domestic liquidity in support of credit activity.
The reduction came a day after the board reduced the benchmark policy rates by another 25 bps to 4 percent amid the slowdown in consumer prices.
The rates on overnight deposit and overnight lending were likewise reduced.
Reserve requirement, also called cash reserve ratio, is a central bank regulation used by most, but not all, of the world’s central banks that sets the minimum fraction of customer deposits and notes that each bank must hold as reserves rather than lend out.
The Monetary Board on May 9 trimmed the policy rates by 25 basis points to 4.5 percent, the first time in more than six years, as inflation continued on its downward trajectory.
The following week, the board cut the reserve requirement of universal and commercial banks by 2 percentage point to 16 percent. It was complemented by a 200-basis point reduction in RRR on May 23 for thrift bank and non-financial institutions with quasi-banking functions, as well as 100 bps cut for demand deposits of rural and cooperative banks effective May 31.
Economists earlier said the cuts would be “positive for both the Philippine economy and financial markets, in terms of greater economic activities/faster GDP growth.”
ING Bank Manila senior economist Nicholas Mapa earlier said the BSP might have learned from the previous RRR reductions in 2018, when “clandestine” non-policy meeting RRR cuts “caught market off guard… ”
“Learning from the previous episode of RRR cuts in 2018, the BSP opted to telegraph the series of ‘measured reductions’ bringing the 2019 edition of redux into the third quarter of the year…,” Mapa said in a report.
BSP Governor Benjamin Diokno earlier said he was aiming for a single-digit level of RRR within his term.