The Bangko Sentral ng Pilipinas will not likely trim the reserve requirement ratios of banks at the moment, given the sufficient level of money supply circulating in the financial system amid the spread of coronavirus disease 2019 pandemic.
In an online event of Makati Business Club titled “Knowledge Series on Recovery and Resilience: Rethinking Growth Post COVID-19” held Friday, BSP Governor Benjamin Diokno cited the monetary policy actions done by the regulator to counter the impact of the pandemic to the economy.
The BSP cut the policy interest rates by 50 basis points to 3.25 percent on March 19 in a bid to provide monetary stimulus to the economy.
The 50-bps cut in interest rates was the first time of such size of reduction in a single board meeting in more than 11 years since the BSP reduced the policy rates by 50-bps to 5 percent on Jan. 29, 2009. The interest rates on the overnight lending and deposit facilities were reduced to 3.75 percent and 2.75 percent, respectively.
The BSP on March 24 also cut the reserve requirement ratios of universal and commercial banks by 200 basis points to 12 percent to boost domestic liquidity amid the onslaught of coronavirus disease or COVID-19 that threatens economic growth.
“… We did all these actions last March and April. So we have time to observe, we took a pause… Right now, there’s ample liquidity in the system. [There is] no pressure to cut reserve requirement,” Diokno said.
The 200-bps cut in RRR translates into around P180 billion to P200 billion freed up to the financial system. The 200-bps cut was just a part of the 400-bps cut allowed for this year by the Monetary Board.
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 commercial bank must hold as reserves rather than lend out.
Diokno said the BSP’s policy space remained sufficient, adding the BSP has yet to exhaust the conventional monetary instruments in its toolkit to support the liquidity requirements of the economy, should conditions warrant.
“The COVID-19 pandemic has affected various industry sectors where banks may have substantial exposures to. As the economy gradually moves beyond quarantine, the amplification of strains in the whole financial system have yet to be revealed,” Diokno said.
Despite the gloom, Diokno said there was reason for optimism on the prospects of the Philippine economy.
He cited the foreign exchange buffer, low public sector debt, manageable external payments position,and a solid credit profile. The country’s external debt metrics have steadily improved. The external debt-to-GDP ratio stood at just 23.3 percent as of end-2019 compared to about 60 percent in 2005.
He said Philippine banks were well-capitalized, liquidity positions were strong, and non-performing loans were low–demonstrating the effectiveness of progressive banking regulatory reforms the BSP has implemented over the years.