The Philippines cuts bank reserve requirement ratio to 18%

However, the country still has one of the highest RRR levels in Asia.

The Philippines’ central bank has announced a one percentage-point reduction in the reserve requirement ratio from 19% to 18% effective June 1, in a move that releases around $1.71b (PHP90b) in fresh liquidity into the financial system.

The reserve requirement ratio is the amount of deposits banks must hold in reserve in cash and cannot be used for loans.

The cut comes shortly after an earlier one percentage-point reduction that kicked into effect last March as the Bangko Sentral ng Pilipinas moves to continue a ‘gradual and phased reduction’ with the aim of reducing reliance on reserves to manage overall liquidity.

Also read: The Philippines' bank assets up 11.3% to $300.3b in Q1

BSP governor Nestor Espenilla has earlier announced that he wants to see the RRR reduced to single-digit levels.

“The shift to the auction-based monetary operations under the interest rate corridor (IRC) framework has allowed the BSP to provide more effective guidance to short-term market interest rates, which should help facilitate healthy price discovery on the cost of funds in the financial system,” BSP said in a statement.

The reduction in reserve requirements is also part of the central bank’s reform agenda to promote a more efficient financial system by lowering intermediation costs.

Despite the recent reductions, the Philippines still has one of the highest RRR in the region compared to China which also recently relaxed its RRR to 17 %, Taiwan’s 6%, Singapore’s 3% and Japan’s 0.85%.

Photo from Ramon FVelasquez - Own work, CC BY-SA 3.0