BSP seen resuming RRR reduction this year

The Bangko Sentral ng Pilipinas (BSP) may resume the reduction in banks’ reserve requirement as part of the regulator’s commitment to bring down the level to single digit by 2023, according to economists.

Nomura chief ASEAN economist Euben Paracuelles said the Monetary Board is likely to cut the reserve requirement ratio (RRR) by 300 basis points this year as inflation continued to ease.

“We still see BSP cutting the RRR by a total of 300 basis points, delivered from the second quarter of 2022, given on-target inflation,” Paracuelles said.

As part of its COVID response measures, the BSP lowered the RRR for big banks and slashed interest rates by 200 basis points in 2020 to cushion the impact of the pandemic on the economy.

Other measures, such as the recurring P540 billion non-interest bearing loans to the national government that was recently reduced to P300 billion, the P38.9 billion dividends remitted to the national coffers, as well as the purchase of government securities in the secondary market unleashed P2.3 trillion into the financial system to boost economic activity.

From a high of 20 in 2018, BSP Governor Benjamin Diokno has committed to bring down the RRR for big banks to single digit by the end of his term in 2023.

With the additional 200-basis-point cut in 2020, the portion of reserve liabilities that universal and commercial banks must hold on to instead of lend out or invest currently stands at 12 percent.

During the year, the BSP also lowered the RRR for midsized and small banks by 100 basis points to three and two percent, respectively.

“These cuts would take the RRR to nine from 12 percent, in line with Governor Diokno’s pledge to reduce the RRR to single digit before his term ends in July 2023,” Paracuelles said.

Nomura sees inflation to

average 2.9 percent this year after accelerating to 3.9 percent last year from 2.4 percent in 2020 due to rising global oil prices, as well as elevated food prices.

For his part, Rizal Commercial Banking Corp. chief economist Michael Ricafort said the BSP is likely to lower the RRR by 100 to 200 basis points either in late 2022 or in early 2023.

“In view of the target of single-digit RRR by 2023 and to better align with the region, I expect the BSP to lower the level by one to two percentage points later in 2022 or in 2023, especially if inflation stabilizes further,” Ricafort said.

For every 100- basis- point cut in RRR, about P90 billion to P100 billion in additional funds are released into the financial system.