BSP on track to lower RRR to single-digit

Lawrence Agcaoili - The Philippine Star
BSP on track to lower RRR to single-digit
BSP Deputy Governor Francisco Dakila Jr. said, in a virtual press briefing, that the further reduction of the reserve requirement ratio (RRR)remains on the table amid the ongoing pandemic.

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) remains on track with its commitment to lower the level of deposits big banks are required to keep with the central bank to a single digit level by 2023.

BSP Deputy Governor Francisco Dakila Jr. said, in a virtual press briefing, that the further reduction of the reserve requirement ratio (RRR)remains on the table amid the ongoing  pandemic.

“Further adjustments on the RRR remain on the table, depending on domestic liquidity and recovery in credit demand in the coming months,” Dakila said.

The BSP slashed the RRR for big banks by 200 basis points to 12 percent and for mid-sized and small banks by 100 basis points to three percent and two percent, respectively, last year to free up more liquidity into the financial system amid the pandemic.

No less than BSP Governor Benjamin Diokno  committed to bring down the RRR level of big banks to a single digit by 2023 from an ultra-high 20 percent in early 2018.

As part of its other pandemic response measures, the central bank has been extending a P540 billion provisional advance to the national government to boost its war chest versus the global health pandemic. The government is now asking for a lower P300 billion assistance.

The central bank’s COVID-19 response measures, which include the purchase of government securities in the secondary market, the lowering of the RRR, the cumulative 200 basis points interest rate cuts, among others,  unleashed P2.3 trillion to boost economic activity and cushion the impact of the global health crisis.

Despite the massive funds released into the financial system, loan disbursed by universal and commercial banks slumped for eight straight months between December last year and July this year, as it took more time for the economy to absorb the aggressive interest rate cuts last year.

Latest data from the central bank showed credit growth accelerates for the third straight month, rising by  3.5 percent in October from 2.7 percent in September with the gradual reopening of the economy as the country recovers from the pandemic-induced recession.

Big banks disbursed P9.27 trillion in October or P312 billion higher than the P8.96 billion recorded in the same month last year to reflect the expansion in business activity amid easing quarantine restrictions, declining COVID-19 cases, and increasing vaccinations.

The BSP Monetary Board has kept interest rates at record lows for nine straight rate-setting meetings as Diokno vowed to do whatever it takes to help the economy fully recover from the impact of the pandemic.

The last time the central bank tweaked interest rates was in November last year when it delivered a surprise 25 basis points cut.

British banking giant HSBC expects the BSP to lower the RRR anew next year.

HSBC said the next move for the central bank would likely be a 100 basis points cut to the RRR in 2022, reversing the drain on liquidity once the national government pays back its P540 billion provisional advance provided by the BSP.

The central bank also appeared to have slowed secondary market bond purchases this year based on the latest balance sheet data through August.

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