BSP: Fiscal conditions not ripe for reserve requirement reduction
MANILA— Perhaps it's not yet time to lower the amount of cash banks are required to keep in their vaults, the Bangko Sentral ng Pilipinas said amid continued growth in bank lending and amount of money circulating in the economy.
BSP Governor Nestor Espenilla Jr. earlier said the central bank was set to trim the reserve requirement ratio (RRR), currently pegged at 20 percent, to single digit levels.
In a recent interview with New York-based think tank GlobalSource Partners, Espenilla said: “While the current manageable outlook for inflation allows scope for a reduction in RRs, domestic liquidity conditions are not unduly tight, as both M3 (domestic liquidity) and credit continue to expand at double-digit rates.”
The Philippines has the highest RRR in the region since it was raised to 20 percent in May 2014.
Major players in the country’s banking industry said the plan to gradually lower the level of deposits that banks are required to maintain with the central bank would help sustain strong economic expansion.
But according to the BSP chief, “additional stimulus” to the real economy is not necessary at present, with the overall pace of credit growth “considered to be in line with the requirements of the economy.”
Bank lending growth further eased to 19.2 percent in November last year from 19.9 percent in October and 21.1 percent in September. Meanwhile, domestic liquidity grew 14.0 percent that month to reach about P10.4 trillion.
Nevertheless, Espenilla said the central bank remains committed to pursue the RRR reduction over the medium term.
"Such a move will address implications on financial institutions’ funding costs, channel funds toward productive activities, facilitate capital market development, and support the BSP’s broader effort to make monetary policy implementation more market-based," he said.
"In terms of reducing reserve requirement ratios, let me emphasize that in line with the BSP’s medium-term objective, the timing and magnitude of the adjustment will be consistent with the primary objective of maintaining price stability," he added.