December RRR trim still possible
The relatively benign/low inflation environment may still justify further monetary easing measures, going forward, especially by way of further cut in banks’ RRR
Trimming the Bangko Sentral ng Pilipinas’ (BSP) reserve requirement ratio or RRR for banks remains possible despite all the liquidity it has already infused in the financial system.
Sun Life Philippines chief investments officer Michael Enriquez pegged the possibility of another 100 basis point cut in December despite the current liquidity condition of local banks.
Rizal Commercial Banking Corp. chief economist Michael Ricafort offered a higher 200 basis point cut view, noting the economy’s need to get all the help it could get in both monetary and fiscal terms.
“The limited government funding for economic stimulus measures necessitate more heavy lifting through additional monetary easing measure as seen recently, as the economy still needs all the support guidelines that it could get,” Ricafort explained in a text message.
“The relatively benign/low inflation environment may still justify further monetary easing measures, going forward, especially by way of further cut in banks’ RRR...as early as the next monetary policy-setting meeting on 17 December 2020,” he added.
Target reduction
RRR for large banks currently stands at 12 percent, a couple of figures away from BSP governor Benjamin Diokno’s target to reduce such into single digit levels by 2023.
Union Bank of the Philippines chief economist Carlo Asuncion, meanwhile, said that the central bank may opt to keep RRR rates as it is, waiting for the impact of their recent monetary measures in the economy.
While at it, Asuncion clarified that slashing RRR levels cannot be completely ruled out for the year given the surprise 25 basis point cut made by the BSP in its key interest rates.
Monetary authorities previously allowed the BSP to reduce RRR for banks by as much as 400 basis points, half of which awaits fulfilment.
The BSP injects about P100 billion in terms of fresh liquidity to the financial system for every 100 basis point reduction in the banks’ deposit reserves.