The reduction in the reserve requirement ratio
of banks to 18 percent from 19 percent starting June 1, the second in three months, is set to release close to P100 billion in fresh funds that may be used by banks to lend more to sustain the country's growing economy.
The gradual and phased reduction of the reserve requirement ratio
as envisioned by BSP Governor Nestor Espenilla Jr.
'The reserve requirement ratio
is one of the traditional monetary policy instruments available to BSP.
He said that China could opt for more reserve requirement ratio
cuts to improve lending by banks and try and halt the slowdown in the economy.
Guinigundo said monetary authorities are reviewing their inflation and growth forecasts to factor in latest developments with the impending cut in the reserve requirement ratio
The economist added that the strength of the economy is such that it no longer requires accommodative monetary policy, especially in light of looming cuts to the reserve requirement ratio
Investors unloaded shares as worries were fueled by an announcement Tuesday by the People's Bank of China that it will raise the reserve requirement ratio
by half a percentage point to 15 percent, effective Monday.
In a separate research note, British banking giant HSBC said risks of slower growth this year might prompt some monetary loosening in the form of reserve requirement ratio
cuts by as much as 300 basis points to 15 percent.
The BSP has slashed the ultrahigh reserve requirement ratio
by 200 basis points to 18 percent from 20 percent this year.
However, he said the BSP should be encouraged to reduce the reserve requirement ratio
(RRR) on deposits of commercial and universal banks which is currently at 18 percent, the highest among the ASEAN-5 countries that include Indonesia, Malaysia, Singapore and Thailand.
'Cutting the reserve requirement ratio
by 200 basis points this year already sends a credible and concrete signal to the financial system of BSP commitment to structural reforms so the industry can be guided accordingly in developing their long-term strategic plans,' Espenilla said.
The central bank said the reserve requirement ratio
(RRR) would be cut by 0.5 of a percentage point to 16.5 percent.