The Bangko Sentral ng Pilipinas (BSP) said it expects to reduce banks’ reserve requirement ratio (RRR) by a “quite a bit” within the year.
“I have only one vote, but I would say we can reduce it to 5 percent. Right now, it’s 9.5 percent. That’s one of the highest in the region,” BSP Governor Eli Remolona told Bloomberg TV on Friday.
“The timing is important. We don’t want to do it while we’re still hawkish,” he said.
The BSP in June 2023 slashed the RRR by 250 basis points or 2.5 percent for universal and commercial banks and non-bank financial institutions with quasi-banking functions or NBQBs, 200 bps or 2 percent for digital banks and by 100 bps or 1 percent for thrift banks, rural banks and cooperative banks.
The reduction brought the RRRs of universal and commercial banks and NBQBs from 12 percent to 9.5 percent: digital banks from 8 percent to 6.0 percent; thrift banks from 3 percent to 2 percent; and rural and cooperative banks from 2 percent to 1 percent.
Reserve requirements are the minimum reserves required for depository institutions. They are set by the central bank within limits specified by law. A change in the minimum reserve ratio affects the amount of its deposit base a financial institution can lend out.
The Monetary Board kept rates steady for a fifth straight meeting on May 16, but said a cut in interest rates is likely as early as August.
It maintained the overnight borrowing rate at 6.50 percent and the overnight deposit and lending facilities at 6.0 percent and 7.0 percent, respectively.
The risks to the inflation outlook continue to lean toward the upside. Potential price pressures are linked mainly to higher transport charges, food prices, electricity rates and global oil prices, the BSP said.
It said the latest forecasts indicate that inflation would settle close to the upper end of the target range of 2 percent to 4 percent. The risk-adjusted inflation forecast for 2024 eased to 3.8 percent from 4 percent in the previous meeting.
Meanwhile, the risk-adjusted inflation forecast for 2025 rose to 3.7 percent from 3.5 percent previously. Inflation expectations remain well-anchored, it said.
