MB adjusts reserve requirements

The Monetary Board announced the reduction in the reserve requirement ratio by one percentage point as an operational adjustment to support the BSP’s shift to a market-based implementation of monetary policy and its broad financial market reform agenda.

The reduction will apply to the reservable liabilities of all banks and non-bank financial institutions with quasi-banking functions with reserve requirement currently at 20 percent.

In deciding to reduce the reserve requirement ratios, the board reaffirms the BSP’s commitment to gradually lessen its reliance on reserve requirements for managing liquidity in the financial system.

The board believes that the BSP has attained sufficient progress in its shift towards the use of market-based monetary instruments since the adoption of the interest rate corridor (IRC) framework in June 2016.

Even as the BSP continues to refine its instruments and operations under the IRC, the board observed that the BSP has ample scope to mitigate the potential liquidity impact of a phased reduction in the reserve require- ment by offsetting auction-based monetary operations.

At the same time, the board noted that the reduction in reserve requirements will help mobilize liquidity in support of economic activity as well as capital market development over the medium term.

The reduction in the reserve requirement ratios takes effect on the reserve week beginning on March 2.

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The Bankers Association of the Philippines (BAP) welcomed the decision, “In a few weeks, we expect that BAP member banks will be able to extend additional credit to consumers and enterprises that require adequate funds for their personal and business needs,” BAP managing director Benjamin Castillo said.

“We are confident to this move of the Monetary Board for the gradual reduction in the reserve ratio which clearly demonstrates a strong regulatory framework and supports the BSP’s ability to further manage liquidity while policy rates are within its framework to continuously promote economic growth.” /