A chance to boost inclusive lending after banks reserve cut

THE Bangko Sentral ng Pilipinas (BSP) this week announced that it has reduced the reserve requirement ratio (RRR) for small banks, freeing up billions of pesos in reserve funds. One obvious priority where that extra liquidity should go is toward widening the scope of financial inclusion — or lending to small businesses and farmers — that forms part of the government’s socioeconomic targets.

The reserve rate, or RRR, is the proportion of deposits that banks must keep in reserve against their loanable funds. This rate serves as a measure of security against bad loans, but more importantly, it is used as a tool to manage inflation — which does not only involve the movement of consumer prices but also the amount of money circulating in the broad financial system.