MANILA – Reserve requirement ratio (RRR) of Philippines’ universal and commercial banks (U/KBs) will be lower by 200 basis points (bps) starting March 30, 2020 to ensure adequate liquidity and address weaker economic activity despite the global pandemic.
This reduction is half of the up to 400 basis points slash for this year authorized by the BSP’s policy-making Monetary Board (MB) during its special meeting on Monday.
“The reduction is intended to calm the financial markets and encourage banks to continue lending to both the retail and corporate sectors,” Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said in a text message to journalists Tuesday.
He said the RRR cut will also ensure sufficient liquidity in support of economic activity amidst the Covid-19 pandemic.
Last year, the BSP reduced banks’ RRR by as much as 400 basis points to free up liquidity into the system.
Monetary officials said a 100-basis-point reduction in the RRR releases about PHP90-billion liquidity into the system.
To date, RRR of universal and commercial banks (U/KBs) is at 14 percent, thrift banks (TBs), 4 percent; and rural banks (RBs), 2 percent.
In a statement Tuesday, the central bank said the Board also authorized Diokno to determine the timing, extent, and coverage of the reduction in the RR, taking into consideration the impact of Covid-19 on domestic liquidity.
“The authority given to the Governor to adjust the RR allows the BSP flexibility to promptly address any possible liquidity strain in the industry,” it said.
This reduction is on top of the total of 75-basis-point reduction in the central bank’s key policy rates that the Board decided last February and this month to help address the economic impact of the coronavirus disease 2019 (Covid-19) on the domestic economy, as provided also by the low inflation environment.
The Board also authorized the central bank to purchase PHP300 billion worth of government securities from the Bureau of the Treasury (BTr) under a repurchase agreement payable within six months to augment government funds for Covid 19-related measures.
The BSP statement said possible reduction of RRR of other banks and non-bank financial institutions “will also be explored.”
“The BSP will have to assess the impact of Covid-19 on the broader economy,” Diokno said, adding “the behavior of banks, particularly their capacity to absorb, invest, and lend the freed-up liquidity, will likewise be a determining factor for further adjustments.” (ia/PNA)