Banks’ reserves ratio cut to 19%

The Bangko Sentral ng Pilipinas (BSP) reduced yesterday the level of deposits that banks is required to maintain with the central bank to free up P90 billion worth of funds to support the expanding economy.

BSP Governor Nestor Espenilla Jr. said the Monetary Board has approved the reduction in the reserve requirement ratio (RRR) by one percentage point to 19 percent from 20 percent as an operational adjustment to support the central bank’s shift toward a more market-based implementation of monetary policy, as well as its broad financial market reform agenda.

Espenilla said the reduction would apply to the reservable liabilities of all banks and nonbank financial institutions with quasi-banking functions with reserve requirement currently at 20 percent.

The cut, set to take effect on March 2, would only apply to different instruments of banks to raise funds for operations demand savings and time deposits, as well as other deposit substitute liabilities and peso-denominated common trust funds.

Espenilla said the reduction in reserve requirements would help mobilize liquidity to support economic activity, as well as capital market development over the medium term.

The Philippines has the highest RRR level in the region. The reduction would allow banks to lend more to the productive sector, helping sustain the economic expansion.

Espenilla wants to gradually reduce the RRR to singledigit levels in line with the broad-based overhaul of the country’s financial sector reforms.

“In deciding to reduce the reserve requirement ratios, the Monetary Board reaffirms the BSP’s commitment to gradually lessen its reliance on reserve requirements for managing liquidity in the financial system,” he said.