Peso softens after BSP RRR cut

The Philippine peso weakened against the US dollar on Friday as the foreign exchange market turned to the greenback following the central bank's decision to reduce bank's reserve requirement ratio (RRR).

The local currency shed 15 centavos to close at P52.63:$1 from 52.48 on Thursday.

"The peso weakened today to close as a result of the continuing market reaction to the -2 percentage points reduction in large banks' RRR," Rizal Commercial Banking Corp. lead economist Michael Ricafort said.

BSP Governor Benjamin Diokno, on Thursday, announced that the central bank's Monetary Board decided to cut the RRR by 200 basis points to 16% in three stages— by 100 basis points (bps) effective May 31; 50 bps effective June 28; and another 50 bps effect July 26. 

Currently at 18%, the reserve requirement, the amount of cash a bank must hold in its reserves against deposits made by customers of the Philippines, is among the highest across the globe.

The move, however, could result in additional peso liquidity worth a total of about P190 billion to be infused in the financial system "as some peso funds could also find their way in the peso exchange rate market, as an immediate market reaction," according to Ricafort. —NB, GMA News