BSP likely not yet finished with RRR cuts
MANILA, Philippines — There’s a chance that the Bangko Sentral ng Pilipinas (BSP) is not yet done with its cuts to bank reserves, Security Bank Corp. said, adding that monetary authorities might eventually remove the cash requirement to reduce friction costs.
Speaking to reporters, Angelo Taningco, chief economist at Security Bank, said the BSP might deliver another 200-basis point (bp) reduction to the reserve requirement ratio (RRR) next year, from the current level of 5 percent.
From there, Taningco’s forecast is for the central bank to further trim the RRR by 150 bps each in 2027 and 2028, which would effectively remove such a requirement for banks.
“So you have more growth prospects because you have additional funds,” he said.
READ: BSP announces another outsized RRR cut
The RRR refers to the certain amount of deposits that banks must set aside as standby funds, which do not generate returns because they cannot be used for lending activities. This is to ensure that lenders are able to meet their liabilities in case of sudden withdrawals.
By easing such a requirement, banks now have more available funds to lend, which can create easier financial conditions for an economy that grew below the Marcos administration’s target last year.
The BSP earlier this month announced that the RRR for big banks will be reduced by 200 basis points to 5 percent starting March 28.
At the same time, the RRR for digital banks will be trimmed by 150 bps to 2.5 percent. The reserve requirement for thrift banks will be removed following a 100-bp cut to their RRR.
Analysts estimated that the new round of RRR reduction could free up over P300 billion in additional loanable funds.
Not just lending
Including the previous triple R cut of the same magnitude last October, BSP Governor Eli Remolona Jr. was able to complete his plan to trim bank reserves to 5 percent less than two years into his term.
The RRR was at 9.5 percent when he assumed office back in June 2023. Last year, Remolona said it was possible to eliminate the reserve requirements for banks within his term.
As it is, the decision to further relax the reserve requirements of banks came a week after the powerful Monetary Board (MB) had left the policy rate unchanged at 5.75 percent. But the BSP chief had said the central bank was still on easing mode, adding that the MB would resume cutting interest rates once the uncertainties from global trade developments clear.
Security Bank’s Taningco said some of the additional liquidity would likely go to various investment outlets, not just lending.
“It won’t just go to lending. There will be parts that will go to investment securities,” he said, adding that the BSP must also be mindful of the inflationary impact of the additional money supply.
