By Louise Maureen Simeon | The Philippine Star
July 18, 2023
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) plans to further cut the amount of funds that banks are required to hold in reserve to ensure more efficiency among financial institutions.
In a television interview with Bloomberg on Monday, BSP Governor Eli Remolona said he wants the reserve requirement ratio (RRR) further reduced – a move started by his predecessor Felipe Medalla last month.
“We want to cut it some more when the time is right,” Remolona said.
“Because the reserve requirement is essentially a distortion of financial intermediation,” he said.
Last month, the BSP slashed the RRR for universal and commercial banks as well as non-bank financial institutions with quasi-banking functions, by 250 basis points to 9.5 percent from the current level of 12 percent.
Likewise, the RRR for digital banks was narrowed by 200 basis points to six percent from eight percent.
“We want to make the banking system more efficient, and part of that is cutting the reserve requirement and part of that also is digitalization,” Remolona said.
The BSP chief emphasized that doing so is aimed at being consistent with monetary policy.
“We don’t want to cut the reserve requirement while we are tightening monetary policy,” Remolona explained.
The RRR cut was also targeted to coincide with the expiration of alternative modes of compliance with reserve requirements involving loans to micro, small and medium enterprises last month.
Meanwhile, Remolona said he is expecting that the three other members of the seven-man Monetary Board will be named soon.
As of now, Remolona is joined by Finance Secretary Benjamin Diokno as well as Bruce Tolentino and Anita Linda Aquino who will serve the remainder of their six-year term.
Three seats were vacated as the terms of Medalla, Peter Favila and Antonio Abacan Jr. expired.
“It’s a little difficult (right now). But we will learn soon who the members of the board are,” Remolona said.
“There’s some (Monetary Board) decisions that require four votes, some have to be unanimous, and some that require five votes,” he said.