The Bangko Sentral ng Pilipinas (BSP) said Friday it will reduce the reserve requirement ratios (RRRs) by 200 basis points (bps) for universal and commercial banks (U/KBs) and non-bank financial institutions with quasi-banking functions (NBQBs).
It will also reduce the RRR for digital banks by 150 bps and that for thrift banks by 100 bps.
The BSP said the reduction would bring the RRRs of U/KBs and NBQBs to 5.0 percent; digital banks to 2.5 percent; and TBs to 0.0 percent.
The new ratios will take effect on the reserve week beginning March 28, 2025 and will apply to the local currency deposits and deposit substitute liabilities of banks and NBQBs.
The BSP underscored its long-run goal of enabling banks to channel their funds more effectively toward productive loans and investments.
“Reducing RRRs will lessen frictions that hinder financial intermediation,” it said.
Reserve requirements represent a portion of deposits and deposit substitute liabilities that banks should set aside as standby funds. These should be used for lending activities to ensure that banks would meet their liabilities in case of sudden withdrawals.
The BSP said changes in reserve requirements affect money supply in the banking system, making them a powerful means of liquidity management by the central bank.
Rizal Commercial Banking Corp. chief economist Michael Ricafort said the reduction in RRR would unleash about P320 to P330 billion into the banking system.
“Banks have the option to increase their loans, investments in bonds, equities, forex, and other assets. Instead of being idle as required reserves, at least the PP320 billion to P330 billion would be deployed to more productive investment outlets that generate earnings,” said Ricafort.
“Thus, more loanable funds by large banks would lead to more lending activities at lower intermediation costs that also reduces borrowing costs, thereby would lead to more investments, more employment, greater trade, and more economic activities all of which would lead to faster economic growth,” he said.
The BSP’s Monetary Board kept its key interest rate unchanged at 5.75 percent in its meeting on Feb. 13, 2025.
The Monetary Board said domestic growth prospects continue to be firm, but uncertainty over global economic policies and their impact on the domestic economy has increased significantly.
“Looking ahead, the BSP anticipates continuing its measured shift to less restrictive monetary policy settings, even as previous policy adjustments further work their way through the economy. The BSP will remain data-dependent in ensuring price stability conducive to sustainable economic growth and employment,” it said.