BSP delivers big cut in reserve requirement

Central bank’s surprise move a big boost to economy

The central bank on Thursday kept up its reform market momentum while giving the Philippine economy a boost by reducing further the reserve requirement on local financial institutions by another 100 basis points.

The surprise move brought the total cuts made by the

Bangko Sentral ng Pilipinas to the amount of cash banks must keep immobilized in their vaults by 4-percentage points since Governor Benjamin Diokno took its reins earlier this year, each percentage point releasing up to P100 billion in cash into the financial system.

The policy will take effect in the first reserve week of December, after which banks will only be required to keep 14 percent of their deposits in their vaults, with the rest being available for productive lending activities.

“The reserve requirement reduction is in line with the BSP’S broad financial sector reform agenda to promote a more efficient financial system by lowering intermediation costs,” the central bank said in a statement sent to reporters.

The fresh cut in the reserve ratio was expected to inject more liquidity into the domestic economy which was, in turn, expected to spur the gross domestic product growth that took a hit due to the delayed implementation of the national budget in early 2019.

Diokno said the policymaking Monetary Board also complemented this move by approving similar reductions in the reserve requirements of nonbank financial institutions

and quasibanks to 14 percent, as well as for thrift banks to 4 percent.

“The reduction in the reserve requirement will apply to deposit and deposit substitute liabilities in local currency of banks and nonbanks and quasibanks,” the Bangko Sentral ng Pilipinas statement said.

On top of these string of reserve requirement cuts, the central bank has also cut its key interest rate by a total of 75 basis points this year.

Diokno earlier said he wanted to reduce the reserve requirement of banks—still one of the highest in the world today—to single digit levels by the end of his term in 2023.