Reserve requirement cut must follow rate reduction: HSBC


Posted at May 10 2019 03:10 PM

MANILA – The Bangko Sentral ng Pilipinas should cut the reserve requirement ratio or RRR for banks alongside the 25 basis point reduction in the benchmark interest rate to address slowing growth, an economist said Friday.

Cutting the overnight borrowing rate "is a good first step but I think it’s insufficient," HSBC Asia economist Noelan Arbis told ANC's Market Edge.

“We also see tight liquidity in the Philippine domestic market and the rate cut alone doesn’t solve that… When you cut the policy rate, you’re essentially saying we should have banks lend more and they need to have liquidity in the system to lend out more. So that’s why they really should think about cutting the RRR,” Arbis said.

Arbis said the BSP could cut the RRR, currently at 18 percent, by 100 basis points next week, and 100 basis points per quarter for the rest of the year.

The BSP cut the benchmark rate on Thursday after January to March gross domestic product growth fell below expectations at 5.6 percent, the slowest expansion in 4 years.