MANILA (UPDATE 2) - The Bangko Sentral ng Pilipinas will cut the reserve requirement ratio (RRR) for banks by 200 basis points in three tranches starting May 31, BSP Governor Benjamin Diokno said Thursday.
A 100-basis point cut will take effect on May 31, followed by two other cuts of 50 basis points each on June 28 and July 26.
"This new policy will apply to universal and commercial banks only. For the other types of banks, the cut In RRR will be considered in the next monetary board meeting," Diokno said in a statement.
The decision came a week after the BSP slashed the benchmark rate by 25 basis points, signaling the start of monetary policy easing after the economy expanded at its slowest pace in 4 years.
Analysts have been expecting the BSP to cut the RRR after interest rates were reduced.
Hans Sicat, ING Bank country manager said the market should welcome the development.
"The good thing about the announcement is that the BSP has put forward a schedule that reinforces the trend line," Sicat said.
The RRR cut would increase liquidity into the local financial system by about P180 billion, RCBC economist Michael Ricafort told ABS-CBN News.
“The latest RRR cut should be generally positive for the local financial markets and the economy in terms of greater amount of funds or loans to be made available by banks to consumers and businesses, which spur greater economic activities and faster GDP growth,” he said.
Bankers Association of the Philippines president Cezar Consing said the RRR cut was a sign of BSP’s effectiveness in strengthening the country’s banking system.
“It is a bold move, coming on the heels of a policy rate cut, but equally appropriate given how our financial system has advanced under the BSP’s stewardship,” Consing said.
The Philippines has one of the highest RRR levels in Asia.
-- with a report from Bruce Rodriguez, ABS-CBN News