• Bangko Sentral downplays RRR cut concerns


    Concerns over the reduction of bank reserve requirements are unfounded, the Bangko Sentral ng Pilipinas (BSP) said as it reiterated that the move did not represent an easing of monetary policy.

    The Monetary Board earlier this month approved a one-percentage point adjustment to the 20 percent reserve requirement ratio (RRR), which will support the Bangko Sentral’s “shift toward a more market-based implementation of monetary policy as well as its broad financial market reform agenda.”

    Central bank Governor Nestor Espenilla Jr. told reporters that monetary authorities would rather overtly signal policy changes via changes to the overnight reverse repurchase (RRP) rate.

    “But it can also do that more subtly without necessarily changing the RRP rate, by allowing the market-determined TDF (term deposit facility) rates to rise [or fall]by altering auction volumes,” he added.

    The Bangko Sentral chief said the establishment of the interest rate corridor (IRC) mechanism in 2016 had given the monetary authority fine maneuvering room to determine monetary policy and gradually bring down the reserve requirement.

    “That’s why we don’t see it as an easing of monetary policy stance. Not at all. What BSP is executing is just an operational adjustment that should have a neutral effect on the monetary policy stance,” he said.

    While speculators may be using the reserve requirement reduction as pretext for driving the peso down, Espenilla said the central bank could sell foreign exchange from its reserves to manage excessive volatility.

    “The bottomline … [is that]the BSP has many options to maintain firm monetary control,” he said

    The key reason that the RRR was cut is to promote a more efficient and level financial system, Espenilla said, adding that “this really in a sense part of a grand normalization process alongside capital market reforms and FX (foreign exchange) liberalization.”

    “Implementing these reforms is both complex and exciting. It is a very absorbing endeavor for me.”


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