Central bank chief looks to bring down big banks’ RRR to zero within term

The Philippine central bank chief said big lenders’ reserve requirement ratio (RRR) could be brought down to as low as zero before his term ends in 2029.

Asked if the RRR could be reduced to zero during his six-year term, Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. said this is “possible.”

“We’ve been discussing bringing it down to 5%, but we still don’t know when. But we will get there. The 7% is still high,” he said in mixed English and Filipino on the sidelines of an event on Monday.

The BSP last month announced that it would reduce the RRR for universal and commercial banks and nonbank financial institutions with quasi-banking functions by 250 basis points (bps) to 7% from 9.5% effective on Oct. 25.

It will also cut the RRR for digital banks by 200 bps to 4%, while the ratio for thrift lenders will be reduced by 100 bps to 1%. Rural and cooperative banks’ RRR will likewise go down by 100 bps to 0%.

The RRR is the portion of reserves that banks must hold onto rather than lending out. When a bank is required to hold a lower reserve ratio, it has more funds to lend to borrowers.

Mr. Remolona is serving a six-year term, which began last year and will end in 2029.

He earlier said the BSP is eyeing to bring down big banks’ RRR to as low as 5% from a high of 20% in 2018 as the country’s reserve requirements are among the highest in the region.

LARGE RATE CUT

Meanwhile, Mr. Remolona said the central bank has room to cut benchmark interest rates by 50 bps in one meeting but reiterated that this would only be done in a “hard-landing” scenario.

“I think there is (space). But usually, you’re worried about a hard landing when you consider 50 bps,” he said.

“If there’s no risk of a hard landing, 25-25 (for now), 25 bps is normal; 50 bps, you’re worried that there might be a hard landing.”

The central bank in August reduced borrowing costs for the first time in nearly four years, cutting its policy rate by 25 bps to 6.25% from the over 17-year high of 6.5%.

The Monetary Board’s policy meeting this month has been rescheduled to Oct. 16 from Oct. 17, Mr. Remolona said, while its last review for the year will be held on Dec. 19.

The BSP chief last month said they could deliver a 25-bp rate cut each at their October and December meetings. This would bring the policy rate to 5.75% by end-2024. — Luisa Maria Jacinta C. Jocson