BSP likely to cut RRR in first half
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.