BSP to resume cuts to reserve requirement next year: Espenilla


Posted at Jul 26 2018 07:41 PM

MANILA - The Philippine central bank will resume cutting the reserve requirement ratio (RRR) next year after reducing it by a total 2 percentage points this year in line with its medium-term goal to bring it to single digit levels, its governor said on Thursday. 

The central bank cut banks' required reserves twice, by 1 percentage point each in March and in June, to 18 percent. The move added liquidity of around 200 billion pesos ($3.74 billion) in to the financial system, according to the central bank. 

"This initiative can resume next year just as inflation returns to target based on our forecast", central bank Governor Nestor Espenilla said in a phone message. 

Espenilla said the goal of bringing the RRR to a single digit before his six-year term ends in 2023 is "quite attainable without sacrificing effective monetary control".

Inflation is expected to average 4.5 percent this year, the central bank has said, above its 2-4 percent target for this year and next. For next year, it is projected to return within the target and average 3.3 percent. 

For a long time, the Bangko Sentral ng Pilipinas (BSP) has flagged a gradual reduction in RRR to a single digit as it cuts reliance on this tool to manage liquidity.

It has repeatedly said the RRR cuts should not be mistaken as a change in monetary policy in one of the fastest-growing economies in Asia.

Espenilla has signalled the door is wide open for a third interest rate hike this year after he said last week the central bank was considering "strong monetary action" at its meeting next month to tame inflation and foreign exchange volatility.

The BSP raised interest rates in May and June, becoming the second central bank regionally after Indonesia to deliver two increases in a short period of time.