BSP likely to cut RRR in first half

Manila Bulletin - - Business News - By LEE C. CHIPONGIAN

The Bangko Sen­tral ng Pilip­inas (BSP) is seen cut­ting banks’ re­serve re­quire­ment ra­tio (RRR) within the first six months of the year to lower in­ter­me­di­a­tion costs and in­crease lend­ing.

HSBC econ­o­mist Joseph In­cal­caterra how­ever said that a re­duc­tion in RRR – which he pre­dicts at 100 ba­sis points at least – may not im­me­di­ately re­sult to higher loan ac­tiv­i­ties.

“A 100bp cut to the RRR for banks is likely over next six months to ease liq­uid­ity con­straints on banks, but this is un­likely to spur new lend­ing,” com­mented In­cal­caterra in the bank’s lat­est Asia Eco­nomics Quar­terly re­port.

The BSP has in­di­cated in­ten­tions to lower RRR af­ter in­tro­duc­ing the in­ter­est rate cor­ri­dor (IRC) in June last year and im­ple­ment­ing a weekly auc­tion of a 7- and 28-day term de­posit fa­cil­ity.

In­cal­caterra said it is also likely that the de­posit rate for the longer­dated 28-days will even­tu­ally climb to the three per­cent level which is the pol­icy rate. “Con­se­quently, it is im­por­tant to note that there has been some in­cre­men­tal tight­en­ing in the fi­nan­cial sys­tem de­spite rates stay­ing on hold,” he noted.

“Mone­tary pol­icy re­mains fairly ac­com­moda­tive af­ter the im­ple­men­ta­tion of the IRC,” In­cal­caterra added. When the IRC was adopted, the cen­tral bank low­ered the bench­mark rate by 100 ba­sis points and auc­tioned off term de­posit in­stru­ments ini­tially at R30 bil­lion and grad­u­ally raised the vol­ume to R180 bil­lion.

In­cal­caterra said pre­vi­ously that the term de­posit fa­cil­ity (TDF) vol­ume is too small and ten­ders are fre­quently over the of­fered amount.

The BSP has sig­nalled that it may lower the RRR for banks this year as more funds mi­grate from the overnight de­posit fa­cil­ity to the new term de­posit fa­cil­ity.

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