BSP cutting banks’ reserve requirement

The move will free up an estimated 90 billion peso from bank vaults, which they could then use productively as loans to corporations, consumers or investments in equity or debt securities.
In a statement, the Bangko Sentral ng Pilipinas (BSP) said its policymaking Monetary Board approved the reduction in the reserve requirement by 1 percentage point.
The move is “an operational adjustment to support the BSP’s shift towards a more market-based implementation of monetary policy, as well as its broad financial market reform agenda,” said BSP Governor Nestor Espenilla Jr.
The reduction will apply to the reservable liabilities of all banks and non-bank financial institutions with quasi-banking functions with reserve requirement currently at 20 per cent.
The reduction in the reserve requirement ratios will take effect on the reserve week beginning March 2, 2018, the BSP said.
The move marks the first of what is expected to be a series of reserve requirement cuts by the central bank until Espenilla’s goal of reducing bank reserves to “single digit levels” is achieved.
The policy was communicated to the financial community soon after the BSP chief assumed office last year. He noted that, in the region, the Philippines was the only economy of its size to require banks to immobilize so much cash in their vaults.
This cash, once freed up, could be used more productively to help finance the 9-trillion peso infrastructure buildup programme of the Duterte administration.
“In deciding to reduce the reserve requirement ratios, the Monetary Board reaffirms the BSP’s commitment to gradually lessen its reliance on reserve requirements for managing liquidity in the financial system,” Espenilla said.
“The Monetary Board believes that the BSP has attained sufficient progress in its shift towards the use of market-based monetary instruments since the adoption of the interest rate corridor (IRC) framework in June 2016,” he added.