THE Bangko Sentral ng Pilipinas (BSP) on Friday announced reductions in bank reserve requirements, set to take effect on October 25, with further cuts possible given the current inflation outlook. The reserve requirement ratios (RRR) for universal and commercial banks, and nonbank financial institutions with quasi-banking functions (NBQBs) will be slashed by 250 basis points (bps) to 7.0 percent, 200 points to 4.0 percent for digital banks, and 100 bps to 1.0 percent and zero percent, respectively, for thrift banks, and rural banks and cooperative banks. Reducing the RRR will release funds that can be directed toward productive activities, boosting economic growth. "The new ratios shall take effect on the reserve week beginning on 25 October 2024 and shall apply to the local currency deposits and deposit substitute liabilities of banks and NBQBs," the central bank said in a statement. Earlier this week, BSP Governor Eli Remolona Jr. said that reserve ratios would be lowered "substantially" this year with further cuts likely in 2025. "We're considering it. We've discussed the timing of it. I would say it's going to happen this year," he told reporters on Wednesday. Remolona has previously said that the RRR — the percentage of deposits that banks have to set aside and not lend out — could be cut by 450 bps. In June last year, the BSP ordered a 250-basis-point cut in the RRR for universal and commercial banks, and NBQBs to 9.5 percent from 12.0 percent. That for digital banks was lowered by 200 bps to 6.0 percent, while those for thrift banks and rural banks/cooperative banks were cut by 100 bps to 2.0 percent and 1.0 percent, respectively. The BSP said the upcoming cuts were "in line with its continuing efforts to reduce distortions in the financial system" and would "lower intermediation costs and promote better pricing for financial services." With inflation expected to stay on target over the next two years, the BSP said that it would review the need for further reserve requirement cuts to better match regional standards in the medium term. Commenting on the BSP move, Rizal Commercial Banking Corp. chief economist Michael Ricafort said the RRR cut would increase demand for loans and will boost economic growth. He said that around P150 billion per 1 percentage point RRR reduction, or a total of about P375 billion for the 2.5 percentage points cut, would be released into the financial system "This would lead to lower intermediation costs by banks and would be passed on in terms of lower loan rates," he added. "Furthermore, there would be more pesos that could be invested in the financial markets such as bonds and other fixed income investments, stocks, currency, property, among others." WITH A REPORT FROM PNA
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