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Philippines central bank cuts reserve ratio

| Updated: February 16, 2018 12:30:34


BSP cuts bank reserve ratio

The Bangko Sentral ng Pilipinas (BSP), the central bank of the Philippines, has announced Thursday a  1 percentage-point cut on banks’ reserve requirement ratio (RRR).

The central bank reduced the RRR as a move that could pump more than $1.5 billion into the economy but put fresh pressure on the peso, which has sunk to near 12-year lows, reports Reuters.

The BSP governor Nestor Espenilla said the planned RRR cuts are part of the bank’s financial market reforms, following its shift to an interest rate corridor system in June 2016.

“In deciding to reduce the reserve requirement ratios, the Monetary Board reaffirms the (Philippine central bank‘s) commitment to gradually lessen its reliance on reserve requirements for managing liquidity in the financial system,” the central bank said in a statement.

The central bank had previously flagged a plan to eventually cut the ratio from 20 per cent as it reduces its reliance on the tool to manage liquidity in the financial system, the report said.

The bank has maintained such a move should not be mistaken as a change in monetary policy in one of the fastest-growing economies in Asia.

But, the timing of the RRR announcement came as a surprise, coming on the eve of a public holiday and it was not made as usual at a scheduled policy meeting.

The move also came as a Reuters poll showed investors have been adding to their bearish bets on the peso.

The cut will bring the amount of reserves banks need to park with the central bank to 19 per cent, effective on March 2, the report said.

The one-percentage point reduction will inject more than 80 billion pesos ($1.53 billion) into the financial system, but less than 100 billion pesos, Zeno Abenoja, central bank director, said.

However, the central bank said on Thursday that it can mitigate the impact from the additional liquidity through its auction-based monetary operations.

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