BSP cuts further banks’ reserve requirements

The Bangko Sentral ng Pilipinas (BSP) on Friday announced the reduction in banks’ reserve requirement ratios (RRR) as part of its efforts to lower the cost of financial transactions in the country.

In a statement, the BSP said it will be slashing the RRRs for universal and commercial banks and non-bank financial institutions with quasi-banking functions by 200 basis points.

The Central Bank will aslo reduce the RRRs for digital banks by 150 basis points and for thrift banks by 100 basis points.

The reduction shall bring the RRRs of universal and commercial banks and non-bank financial institutions with quasi-banking functions to 5%, digital banks to 2.5%, and thrift banks to 0%.

“The new ratios shall take effect on the reserve week beginning on March 28, 2025 and shall apply to the local currency deposits and deposit substitute liabilities of banks and non-bank financial institutions with quasi-banking functions,” the BSP said.

Reserve requirement refers to the portion or percentage of cash from deposits that banks must keep on hand, which they cannot lend out or invest, to ensure they have enough money to meet liabilities.

The BSP had said that changes in reserve requirements have a significant effect on money supply in the banking system, making them a powerful means of liquidity management.

“The BSP reiterates its long-run goal of enabling banks to channel their funds more effectively toward productive loans and investments,” the Central Bank said.

“Reducing RRRs will lessen frictions that hinder financial intermediation,” it added. — BAP, GMA Integrated News