BSP to reduce banks’ reserve requirement to 16% in 2019

The Bangko Sentral ng Pilipinas (BSP) is expected to reduce the reserve requirement ratio by another 2 percentage points in 2019, the Bank of the Philippine Islands (BPI) said Thursday.

The likelihood of lowering the reserve requirement becomes more certain once Congress approves an increase in capitalization of the central bank, the Ayala-led lender said.

BPI lead economist Emilio Neri Jr. said a lower reserve requirement is likely to happen by mid-2019.

“The next policy move of the BSP could be a resumption of the cuts in the RRR, at least 2 percentage points for 2019. And more likely than not, this is expected by the middle of the year,” Neri told reporters in a press conference.

“The BSP would be able to hasten the pace of its RRR reduction if the government approves the increase in the central bank’s capitalization since this would help the BSP in mopping up excess liquidity through its market-based policy tools,” the bank said in a separate statement.

Voting 15-0, the Senate passed on third and final reading Monday the bill increasing the capitalization of the BSP to P200 billion from P50 billion.

The BSP would be emboldened to lower the reserve requirement even further if inflation decelerates to within the government’s target of 2.0 to 4.0 percent.

“Once it’s very clear that we’re within target, we believe BSP will take initiative to reduce the very repressive reserve requirement,” Neri said.

“Keeping the reserve requirement at 18 percent is repressive, keeping the system too tight,” he emphasized.

This compares with the reserve requirement of 0.8 percent in Japan, 3.0 percent in Vietnam, 3.5 percent Malaysia, and 4 percent in both India and Taiwan.

BSP Governor Nestor Espenilla Jr. personally wants to cut the reserve requirement ratio to single-digit level under his term.

“Another thing is fintech is happening very fast and you have to level the playing field among the traditional and new emerging technology in banking. Having a high reserve requirement is unfair to the traditional banking institutions,” Neri said, noting that most fintech companies are not required to comply with the reserve requirement. —VDS, GMA News