DBS Bank of Singapore expects the Monetary Board of the Bangko Sentral ng Pilipinas to resume the reduction in the reserve requirement of banks in its meeting Thursday.
The current reserve requirement of banks stands at 18 percent, considered one of the highest in the region, despite the 2-percentage-point reduction last year.
DBS said in a report Tuesday the BSP might proceed with the RRR reduction but would likely keep the benchmark policy rates steady in the second MB meeting this year.
“We expect Bangko Sentral ng Pilipinas to cut bank reserve requirement ratio by 1 percent but keep the policy rate unchanged… The appointment of former Budget Secretary Benjamin Diokno to the position of BSP Governor has fundamentally changed the monetary policy outlook,” DBS said.
After his appointment as BSP governor by President Rodrigo Duterte last month, Diokno made known his intention to cut the reserve requirement of banks, saying the current ratio remained “too high.”
Diokno, however, said the Monetary Board, which he chairs, would continue to be data-dependent in deciding when to resume the reduction in reserve requirement.
The reserve requirement, or cash reserve ratio, is a central bank regulation that sets the minimum amount of reserves that should be kept by a commercial bank.
Diokno said the timing for the next RRR cut would be very important.
DBS’s expectation echoed that of ING Bank Manila senior economist Nicholas Mapa who said earlier that the Bangko Sentral might cut the reserve requirement in its meeting Thursday to address the current tight liquidity condition.
“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.
Mapa said another evidence of tightening liquidity conditions was 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 at the March 21 meeting, adding this could happen in May.