Philippine central bank cuts RRR to ensure stable domestic liquidity

The Philippine central bank said on Thursday (Jun 8) it will cut banks’ reserve requirement ratios (RRR) to ensure stable domestic credit conditions, moving to offset the expiration of liquidity-enhancing relief measures for lenders during the pandemic.

The Bangko Sentral ng Pilipinas (BSP) will implement a RRR reduction of 250 basis points (bps) for universal and commercial banks and for non-bank financial institutions with quasi-banking functions, effective Jun 30.

It has also decided to reduce the RRR, or the percentage of deposits and deposit substitutes banks must keep with the BSP, by 200 bps for digital banks, and by 100 bps for thrift banks, rural banks, and cooperative banks, it said in a statement.

The measure will bring the RRRs for big lenders to 9.5 per cent, digital banks to 6.0 per cent, thrift banks to 2.0 per cent, and rural and cooperative banks to 1.0 per cent, it said.

“The reduction in reserve ratios is intended to coincide with the expiration of alternative modes of compliance with reserve requirements by end-June 2023 and thereby ensure stable domestic liquidity and credit conditions,” the BSP said.

It added the lower RRRs “do not constitute any shift in the BSP’s monetary policy settings”, adding that bringing inflation back towards the target range remains its priority.

The BSP said it would continue to signal its monetary policy stance through its benchmark interest rate, which it kept steady last month after a series of hikes. Inflation is easing and is expected to be fall to within the central bank’s target range later in the year, it added.

Headline inflation in May slowed for a fourth consecutive month to 6.1 per cent, bringing the January-May average to 7.5 per cent, still well above the central bank’s 2 per cent-4 per cent target range for the year.

Speaking to reporters, BSP governor Felipe Medalla said his own view was that the central bank’s rate-hike pause “is very likely to continue” when it holds its policy meeting on Jun 22.

Medalla’s term as central bank chief will expire in July, though he may be re-appointed by President Ferdinand Marcos Jr. REUTERS