Bangko Sentral Reduces Reserve Rates

The Bangko Sentral ng Pilipinas (BSP) will cut the reserve requirement ratios (RRR) for the banking system next month in a bid to lower financial intermediation costs, such as reducing pricing for financial instruments.

The BSP's move is expected to increase the available lending for the banking system. I Photo: Bangko Sentral ng Pilipinas Facebook

This move is expected to increase the available lending for the banking system, following the BSP's assessment that the inflation outlook is now within the 2% to 4% target range.

The RRR, which represents the money banks are required to set aside for every deposit made, will be reduced by 250 basis points (bps) for universal and commercial banks (U/KBs) and non-bank financial institutions with quasi-banking functions (NBQBs), 200 bps for digital banks, and 100 bps for thrift banks (TBs), rural banks, and cooperative banks (RCBs).

These reductions will bring the RRR to 7.0% for U/KBs and NBQBs, 4.0% for digital banks, 1.0% for TBs, and 0.0% for RCBs.

The new ratios will take effect during the reserve week beginning on October 25, 2024, and will apply to local currency deposits and deposit substitute liabilities of banks and NBQBs.

The BSP emphasizes that these adjustments to reserve requirements are part of its ongoing efforts to reduce distortions in the financial system. The reduction will lower intermediation costs and promote better pricing for financial services.

As inflation continues to track a target-consistent path over the next two years, the BSP will reassess the need for further reductions in the RRR to better align with regional norms in the medium term.