THE decision of the Bangko Sentral ng Pilipinas (BSP) to reduce the reserve requirement ratio (RRR) of banks represents a billions-worth in liquidity infusion, according to market research firm Nomura.
THE decision of the Bangko Sentral ng Pilipinas to reduce the reserve requirement ratio of banks represents a billions-worth in liquidity infusion, according to market research firm Nomura.
“This is comparable with the last RRR cut in June 2023—by a similar 250 bps—but the impact on money supply growth was relatively muted then because it was aimed at offsetting the tightening in liquidity due to the expiry of some pandemic-linked measures,” the Nomura economists said. Abenoja said these include the issuance of multiple tenors for the BSP bills such as the 28-day tenor introduced in September 2020 and the 56-day tenor implemented in June 2023.
Apart from the RRR cuts, the Nomura economists also expect the BSP to continue reducing key policy rates on account of the easing of monetary policy that began in August ahead of the United States Federal Reserve. This would bring the policy rate down to 5 percent by May 2025. The economists do not see a larger reduction in policy rates of above 25 bps because some of the easing in monetary policy will already be accomplished through the RRR cuts.
On Friday, BSP decided to reduce the reserve requirement ratios by 250 basis points for UKBs and NBQBs, effectively bringing this down to 7 percent from the current 9.5 percent starting October 25.
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