BSP cuts TB, RCB reserve requirement
ANOTHER P10 billion worth of liquidity will be released into the economy’s cash stream, as the Bangko Sentral ng Pilipinas (BSP) decided to cut the reserve requirement of smaller banks on Tuesday.
In a statement, BSP Governor Benjamin Diokno announced a 100-basis-point reduction in the reserve requirements of thrift banks (TBS), rural and cooperative banks (RCBS) effective July 31, 2020.
Diokno told reporters that the deposits and deposit substitute liabilities of thrift, rural and cooperative banks currently amount to about P1 trillion. This means that the BSP’S move will release P10 billion of fresh liquidity infusion into the economy.
The reserve requirement is the portion of depositors’ balances that banks are asked to keep idle in the BSP’S vaults as reserves. A reduction of the reserve requirement means that banks are required to deposit less in the BSP’S coffers, thus leaving them with more loanable funds for the public.
“The reduction is expected to increase lending capacity of these banks to support financing requirements of their micro-, small- and medium-enterprise, as well as rural community-based clients. It will also help lower intermediation costs and ease financial strain faced by these banks’ customers,” Diokno said.
“This move is also part of the BSP’S omnibus package of reforms aimed at assisting the banking public with their liquidity requirements during the coronavirus disease 2019 pandemic and supporting the transition toward a sustainable recovery during the post-crisis period,” he added.
With the reduction, the reserve requirements of TBS and RCBS will be 3 percent and 2 percent, respectively.
As part of its response to aid the economy amid the pandemic, the BSP Monetary Board in March approved a 200-basis-point reduction in the reserve requirements of universal/commercial banks and nonbank financial institutions with quasi-banking functions. The decision was authorized by the Monetary Board through a special meeting called for on Monday.
This move has effectively released P180 billion into the local cash stream.
The cut is one of the slew of actions the BSP made in an effort to keep the economy afloat amid the Covid-19 pandemic. In a span of five months Diokno has already cut the BSP’S main policy rate by 150 basis points. The BSP also announced that it is buying P300 billion worth of government securities from the Bureau of the Treasury to finance the government’s Covid-19 rescue package.