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Monetary Board (MB) further reduced the RRR level by 200 basis points, at 100 basis points each effective by November and by December.

The MB slashed the BSP’s key policy rates by 25 basis points each last May, August and September on sustained deceleration of domestic inflation and on the outlook that domestic growth remains firm amid the slowdown below 6 percent in the first half of the year.

Growth, as measured by gross domestic product (GPD), slowed to 5.6 percent in the first quarter of the year from 6.3 percent in the previous quarter.

It further decelerated to 5.5 percent in the second quarter, which brought the average expansion in the first six months to 5.5 percent, below the government’s 6 percent to 7 percent target this year.

Bank lending, excluding placements in the BSP’s reverse repurchase facility, posted a slower growth of 10.5 percent last August from the previous month’s 11.1 percent point. Bank lending growth in the following month is flat at 10.5 percent.

Domestic money supply, as measured by M3, grew by 7.7 percent year-on-year last September from month-ago’s 6.3 percent in the previous month.

Roces said the RRR cuts were made partly to increase liquidity in the domestic economy to encourage banks to lend more for infrastructure projects, among others.

He, however, noted that the expected results have not been seen so far.

“However, we think that the slow rate in bank lending growth remain reasonable in the interim,” he said, pointing out that the third policy rate cut was made only last September wherein BSP Governor Benjamin Diokno indicated that they are done with the policy reduction this year.

Roces said “uncertainty of further policy cuts until then may have caused borrowers to hold off taking out loans.”

He also said the “money supply growth, in theory, should precede loan growth due to a lag in liquidity absorption.”

He remains optimistic for faster loans and M3 growth in the coming months in line with the government’s catchup spending program aimed to address inability to meet expenditure program in the early part of the year due to the delay in the approval of this year’s national budget.

“And with the pre-announced 100 bps reduction to the RRR each for November and December, borrowing and money supply are projected to continue going up well into 2020 where we expect around 200 to 300 bps of further reductions to the reserve ratio and likely in a front-loading manner similar to the present policy,” he added.(PNA)