BSP cut banks’ reserve ratio by 250 basis points
The Bangko Sentral ng Pilipinas (BSP) [link] cut the reserve requirement ratio (RRR) for universal and commercial banks by 250 basis points, down to 9.5%.
The cut will go into effect on June 30 of this year. The BSP also cut the RRR for digital banks and thrift banks, but to a lesser degree.
On June 30, the RRR is 9.5% for big banks, 6.0% for digital banks, 2.0% for thrift banks, and 1.0% for rural banks and co-ops.
The BSP said that the timing of the cut is aligned with the expiration of “alternative modes of compliance with reserve requirements by end-June 2023”, that the RRR cut did not “constitute any shift in the BSP’s monetary policy settings”, and that controlling inflation through interest rate management is still its top priority.
MB BOTTOM-LINE
Some context here on the RRR is useful.
The RRR itself is the percentage of deposits that a bank must keep as reserves with the BSP.
Historically, the Philippines has maintained a very high RRR relative to its neighbors, and it’s been the goal of the BSP to bring this ratio down for nearly a decade.
Each percentage point of reduction is equivalent to roughly P150 billion in new money injected into the system in the form of loans that banks are now able to make, so this move is equivalent to approximately P375 billion of new money entering the economy.
The BSP seems to imply that the cut is roughly equivalent to the expiring accommodations made for banks during the post-COVID recovery period.
This is a great move for banks, as they’ll be able to write more loans and earn more interest based on deposits that they’ve already technically taken, but is it a great move for the rest of us?
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Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.
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