MONETARY authorities have room to reduce the reserve requirement ratio (RRR) this year following the recent easing in key policy rates, an analyst said.

"Looking forward to RRR cuts soon as it is now clear that the Bangko Sentral ng Pilipinas (BSP) has pivoted from a neutral to a monetary easing stance," Bank of the Philippine Islands (BPI) senior economist Emilio Neri said.

Neri said the BSP's policymaking Monetary Board had the flexibility to alternate between reducing the reverse repurchase (RRP) rate and reserve requirement as long as liquidity and monetary conditions support their price stability mandate.

"BSP can hopefully start cutting the 9.5-percent RRR sometime later this year and hopefully a good part of 2025," Neri said.

The Monetary Board reduced interest rates last week by 25 basis points to 6.25 percent, ending the 17-year high of 6.5 percent.

BSP Governor Eli Remolona Jr. indicated that the central bank might implement another 25-bps cut later this year, possibly during the meetings on October 17 or December 19, the remaining meetings for the year.

Asked about the plans to reduce the reserve requirement, Remolona said that the Monetary Board had not yet discussed it but would raise the issue in one of the next few meetings.

"I think we should reduce the reserve requirement quite substantially," Remolona said.

"Right now, it's at a ridiculous level. It needs to go down substantially. But we haven't made any decision of when to do it. We will do it. But we don't know when," he added.

Remolona earlier said that RRR could be slashed by a total of 450 basis points or 5.0 percent as the current rate of 9.5 percent was still one of the highest in the region.

Lowering RRR — the percentage of deposits and deposits that banks must keep and not lend out — will free up money that can be used for productive activities and grow the economy.

Aside from the 250-bps cut for big banks, the BSP lowered the RRR for digital banks by 200 bps to 6.0 percent and that for thrift banks by 100 bps to 2.0 percent. A 100-bps cut was also implemented for rural and cooperative banks, whose RRR fell to 1.0 percent.

Remolona previously said that further cuts were likely and that timing was important.

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