BSP pulls off welcome surprise: Another cut in bank reserve requirements

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

The surprise move brought the total cuts made by the Bangko Sentral ng Pilipinas (BSP) to the amount of cash banks are required to keep intact by 4 percentage points since Governor Benjamin Diokno took over the BSP reins earlier this year. Each percentage point releases up to P100 million in cash into the financial system.

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

The cut, according to a statement by the BSP, was “in line with broad financial sector reform agenda to promote a more efficient financial system.”

The move would inject more cash into the domestic economy which was expected to spur gross domestic product growth that took a hit when Congress took the 2019 budget hostage over kickbacks in pork barrel funds.

Diokno said the policy making Monetary Board complemented the move by approving similar reductions in the reserve requirements of non-bank financial institutions and quasi-banks to 14 percent, as well as for thrift banks to 4 percent.

On top of this 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 wants 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./TSB