RRR CUT. Any cut in banks' reserve requirement ratio will be done once there are clear signs that inflation rate is on a sustainable downward direction, Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla said Friday (March 24, 2023). Medalla forecasts inflation to decelerate to within the government's 2 to 4 percent target band starting October this year. (PNA file photo)
MANILA – Any adjustment in banks’ reserve requirement ratio (RRR) will be done once domestic inflation rate is on sustainable downward path, Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla said.
In an interview with journalists on Friday, Medalla said cutting the RRR now will confuse the market given the increases in the central bank’s key rates to help address the elevated inflation rate.
“I have this scenario. Inflation is still above 4 percent but clearly on a downward trajectory and everybody believes that that downward trend is unstoppable, then we can cut,” he said.
The rate hikes are aimed at, among others, limiting excess liquidity into the system to help tame strong domestic demand, which will be countered by an RRR cut since this will infuse additional liquidity into the domestic economy.
The last time the BSP reduced banks’ RRR was in 2020 when universal and commercial bank’s (U/KBs) RRR was cut by 200 basis points to 12 percent.
During the same year, RRR of thrift banks (TBs) and rural banks (RBs) were cut by 100 basis points to 3 percent and 2 percent, respectively.
Monetary authorities earlier said they aim to bring down big banks’ RRR to single digit by this year.
Medalla said the right timing to slash RRR is when the markets are convinced that domestic inflation rate is already back within the government’s 2 to 4 percent target band.
He forecasts inflation rate to return to within target levels starting around October this year.
As of end-February this year, the average inflation stood at 8.6 percent. (PNA)
