Rizal Commercial Banking Corporation chief economist Michael Ricafort (PNA file photo)
MANILA – The reduction in banks’ reserve requirement ratio (RRR) by as much as 2.5 percentage points is expected to boost growth in bank lending to above 10 percent in the near term, an economist said.
In a reply to emailed questions from the Philippine News Agency (PNA), Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said the cut in RRR can infuse at least PHP350 billion in the economy, which can be used for additional borrowings both for businesses and households as well as investments in various assets, such as equities and bonds.
“Thus, banks' loan growth could again accelerate to above 10 percent year-on-year for the coming months (from +9.7 percent as of April 2023) and could happen soon since the latest cut on banks' RRR shall take effect on June 30, 2023,” he said.
The RRR cut was announced by the Bangko Sentral ng Pilipinas (BSP) on June 8, with the date of its effectivity set on the same day as the expiration date of the alternative RRR compliance measures put in place during the pandemic.
Specifically, the reduction in universal and commercial banks (U/KBs) and non-bank financial institutions with quasi-banking functions (NBQBs) RRR is 250 basis points (bps) to 9.5 percent; digital banks, 200 bps to 6 percent; thrift banks, 100 bps to 2 percent; and rural banks and cooperative banks, 100 bps to 1 percent.
The BSP said the RRR cut is aimed at ensuring “stable domestic liquidity and credit conditions” once the RRR-related measures expire.
“This operational adjustment is in line with the BSP’s ongoing efforts towards a more active and flexible approach to liquidity management through market-based monetary operations. This includes the inaugural offering on 30 June 2023 of the 56-day BSP Bill, which serves as an additional instrument for absorbing system liquidity,” it said.
The BSP clarified that the slash in the RRR “do(es) not constitute any shift in the BSP’s monetary policy settings.”
“The BSP continues to prioritize bringing inflation back towards a target-consistent path over the medium term and will continue to signal its monetary policy stance through the key policy interest rate, or the rate on the overnight reverse repurchase facility,” it added.
Ricafort said this latest development is expected to boost “growth in loans and other economic/business activities.”
“The RRR cuts are meant to neutralize also the de-facto tightening with the expiration, also by end-June 2023, of some regulatory relief measures, particularly those that allowed some loans, especially MSME (micro, small and medium enterprises) loans and eligible loans for large companies, to be counted for the computation of banks' reserve requirements since the pandemic started,” he added.
Ricafort said the amount of loans that were extended in line with the alternative RRR compliance is “around PHP336 billion as of end-2022 but could have grown in early 2023 (could be somewhat covered by the estimated PHP350 billion funds freed up into the financial system from the cut in banks’ RRR also by end-June 2023).”
He said the additional cash infusion into the economy as a result of the RRR cut will likely be siphoned off through the upcoming 56-day BSP Bills. (PNA)
