The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas, said Tuesday it reduced the reserve requirement ratio of universal and commercial banks by 200 basis points to 12 percent from 14 percent to unleash more liquidity in the market amid the onslaught of coronavirus disease 2019.
BSP Governor Benjamin Diokno said in a text message the 200-bps cut in RRR “translates into P180 billion to P200 billion” freed up to the financial system.
The board said the reduction was decided in a special meeting on Monday night. The 200-bps cut was a part of the 400-bps cut allowed for 2020.
“In a special Monetary Board meeting, the MB authorized Bangko Sentral ng Pilipinas Governor Benjamin Diokno to reduce the reserve requirement ratios of BSP-supervised financial institutions of up to a maximum of 400 bps for 2020,” the board said.
It said to properly calibrate the RRR reduction, the board also authorized Diokno to determine the timing, extent and coverage of the reduction in the RRR, taking into consideration the impact of COVID-19 on domestic liquidity.
“The authority given to the governor to adjust the RRR allows the BSP flexibility to promptly address any possible liquidity strain in the industry,” the board said in a statement.
“Pursuant to this authority, BSP Governor Diokno announced a 200-bps reduction in the RR ratio of reservable liabilities of universal and commercial banks effective March 30,2020,” the board said.
It said the potential cuts on the RRR for other banks and non-bank financial institutions would also be explored. The BSP will then issue guidelines on these operational adjustments.
“The RRR cut is intended to calm the markets and to encourage banks to continue lending to both retail and corporate sectors,” it said.
It said the move would ensure sufficient domestic liquidity in support of economic activity amid the global pandemic.
Diokno said that on the possibility of further RRR reductions, “the BSP will have to assess the impact of COVID-19 on the broader economy.”
He said the behavior of banks, particularly their capacity to absorb, invest and lend the freed-up liquidity would be a determining factor for further adjustments.
ING Bank Manila senior economist Nicholas Mapa said the BSP was likely to “offload another policy rate cut even before the May meeting and another 200 bps worth of RRR reductions should market conditions remain tense.”
Diokno earlier said he was eyeing the RR ratios of banks to be reduced to a single digit by the end of his term.
The BSP cut the policy interest rates by 50 basis points last week to 3.25 percent effective March 20 to provide monetary stimulus to counter the impending economic slowdown.
“In addition, the Monetary Board authorized the time-bound, temporary relaxation of BSP regulations on compliance reporting by banks, calculation of penalties on required reserves, and single borrower limits,” Diokno said.
The Monetary Board also approved a temporary reduction in the term spread on rediscounting loans relative to the overnight lending rate to zero.