BSP to lower reserve requirement ratio on June 30

The Bangko Sentral ng Pilipinas (BSP) on Thursday announced downward adjustments to the reserve requirement ratio (RRR) of lenders across the country, bringing the level to single digits for big banks by the end of the month.

In an advisory, the central bank said it would reduce the RRR of universal and commercial banks and non-bank institutions with quasi-banking functions by 250 basis points to 9.5% starting June 30. It is currently at 12%, which is said to be among the highest in the region.

It will also lower the RRR of digital banks by 200 basis points to 6.0% and that of thrift, rural, and cooperative banks by 100 basis points to 1.0%, effective the same day.

The reserve requirement is the amount of cash a bank must hold in its reserves against deposits made by customers in the Philippines.

The new ratios will apply to the local currency deposits and deposit substitute liabilities of banks and non-bank financial institutions with quasi-banking functions.

"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.

"This operational adjustment is in line with the BSP’s ongoing efforts towards a more active and flexible approach to liquidity management through market-based monetary operations," it added.

BSP Governor Felipe Medalla earlier said any changes to the reserve requirements would be best made by June 30, upon the expiration of the relief provided to micro, small, and medium enterprises (MSMEs).

This comes as the BSP sets the inaugural offering of the 56-day BSP Bill — an additional instrument for absorbing system liquidity — on June 30.

"The BSP emphasizes that the lower reserve requirements do not constitute any shift in the BSP’s monetary policy settings," the central bank said.

"The BSP continues to prioritize bringing inflation back towards a target-consistent path over the medium term and will continue to signal its monetary policy stance through the key policy interest rate, or the rate on the overnight reverse repurchase facility," it added.

The central bank has hiked key policy rates by 425 basis points since May 2022, with the latest being a 25-basis-point increase that took effect on March 23 to bring the benchmark rate to 6.25%.

In late 2022, Medalla said a single-digit RRR for big banks — a target set by his predecessor, Finance Secretary Benjamin Diokno — could still be realized by the end of his term in July. —VBL, GMA Integrated News