Bangko Sentral ng Pilipinas Governor Benjamin Diokno on Wednesday ruled out the possibility of another reduction in the reserve requirement ratio of banks, saying liquidity in the financial system remains sufficient.
Diokno said in the online forum Philippine Business Outlook 2021that any move by the Monetary Board, whether to cut the policy rates or the reserve requirements, would be data-dependent.
“It depends on whether there is a need for additional liquidity [in the financial system]. There is no RRR cut at this time,” he said.
The BSP last year cut the policy rates by a total of 200 basis points to a record-low 2 percent. It also reduced the RRR by 200 basis points to 12 percent. These moves, Diokno said, were all aimed to spur domestic activity to offset the impact of the global pandemic.
Data showed that over the past 10 months, the government’s direct response to the COVID-19 pandemic amounted to P2.66 trillion or about 14.7 percent of the gross domestic product.
Diokno earlier made known his intention to cut the RRR to a single digit before he steps down from office by 2023. When he took the helm of the BSP, RRR stood at 18 percent, one of the highest in the region.
Reserve requirement, also called cash reserve ratio, is a central bank regulation used by most central banks that sets the minimum fraction of customer deposits and notes that each commercial bank should hold as reserves rather than lend out.
When asked about any potential cut in policy rates by the first quarter of 2021, Diokno said monetary authorities would look at external and domestic data before making such a decision.
He also defended the monetary authorities’ decision to cut the policy rates by a total of 200 basis points to a record-low of 2 percent last year, contrary to what other sectors were saying that such move was done “too soon.”
“It is better to be ahead of the curve than behind. The consensus is that we did the right thing. It was not too early because the pandemic is not yet over,” Diokno said.
He said the 200 bps cut in policy rate in 2020 reduced the borrowing costs for businesses and even the government.
“All the BSP actions are aimed to enhance the economic and financial betterment of the people... We stand ready to deploy monetary instruments in our tool kit if needed,” Diokno said.
The Monetary Board kept the benchmark borrowing rate at a record-low 2 percent on Dec. 17, 2020, taking into account the benign inflation environment. The interest rates on the overnight deposit and lending facilities were also retained at 1.5 percent and 2.5 percent, respectively.