Regulators’ plans to cut reserve requirements have found support among banking industry players, who say the resulting rise in liquidity will benefit business.
“Lowering the RRR (reserve requirement ratio) will allow banks to boost lending capacity, providing a continuous supply of credit for consumers and businesses,” Banco De Oro (BDO) Treasurer Pedro Florescio said.
This will also open more opportunities for banks to reach to out to more clients and enhance financial inclusion, he added.
While there are concerns that lowering the ratio might lead to an inflationary effect in the long-run, banks are confident that this can be proactively managed by the BSP.
“At the current condition, there will be minimal inflationary effect because the reduced cost of funds will help reduce cost push inflation,” Bank of the Philippine Islands Treasurer Antonio Paner said.
“We are confident that the BSP is equipped to manage the impact on price changes as there are other monetary tools that can be used,” he added.
The RRR is the portion of depositors’ balances that banks maintain with the Bangko Sentral ng Pilipinas (BSP) in the form of cash or other liquid assets.
The ratio currently stands at 20 percent, deemed as one of the highest in the region.
Bangko Sentral Governor Nestor Espenilla Jr. wants to slash this to single-digits, citing the need inject more liquidity into the financial system. It is projected that lowering the RRR will release around P700 billion of idle cash in the medium-term.
When he assumed office in July, Espenilla said the reduction would not “happen immediately”.
In October, he said that monetary authorities would have to follow a “game plan” to reduce the reserve requirement.
“Our game plan is to do it in such as way to avoid the situation that we are unleashing too much liquidity that the economy is unable to absorb,” Espenilla said.