Bangko Sentral ng Pilipinas Governor Benjamin Diokno said Tuesday a further reduction in reserve requirement remains on the agenda of the Monetary Board, but he ruled out the possibility that it would take place together with the expected policy rate reduction on Thursday.
“I think it is not likely… [But] RRR cut is always on the agenda… We can announce it anytime,” Diokno said at the sidelines of Euromoney’s Philippine Investment Forum at Fairmont Hotel in Makati City.
The reserve requirement, also called cash reserve ratio, is a central bank regulation that sets the minimum fraction of customer deposits and notes that each commercial bank must hold as reserves.
The reserve requirement in the Philippines at 16 percent remains the highest in the region. Diokno earlier said his goal was to cut the RRR to a single-digit level within his term.
The Monetary cut the reserve requirement ratios of banks by 200 basis points or 2 percent to 16 percent from 18 percent in May to unlease additional liquidity into the financial market.
The reduction happened in three stages with the first 100 basis points becoming effective on May 31, 50 bps on June 28 and 50 bps on July 26.
The Monetary Board is scheduled to hold its next meeting Thursday. Economists believe the BSP will extend its easing cycle with another 25-basis-point cut in policy rates to 4 percent amid the continued slowdown in inflation rate.
Dutch financial giant ING Bank cited latest data showing a sharp slide in consumer price inflation in August below the BSP’s 2 percent to 4 percent target.
Prakash Sakpal, ING Bank economist for Asia, said this “had set another 25 bps rate cut in stone—the third this year taking the BSP’s overnight borrowing rate to 4 percent,”
Diokno said despite the recent attacks on Saudi Arabia’s oil facilities a few days ago, the timetable for the reduction in policy rates remained.
“As long as the oil prices don’t exceed $85 per barrel, we are still within our inflation target [of 2 to 4 percent],” he said.
The Monetary Board cut the overnight borrowing rate by 25 basis points to 4.25 percent in August, taking into account the continued downward trajectory of inflation rate. The interest rates on the overnight deposit and lending facilities were reduced to 3.75 percent and 4.75 percent, respectively.
Inflation peaked at a nine-year high of 6.7 percent in September and October 2018 but eased to a 35-month low of 1.7 percent in August this year.
This brought the average in the first eight months to 3 percent, the midpoint of the target range