The Philippine central bank lowered its reserve requirement for banks by another 100 basis points to boost liquidity in domestic markets and credit activity, the day after cutting its benchmark interest rate for the third time this year.
In a statement from Sept. 27, Bangko Sentral Ng Pilipinas (BSP) said the new reserve requirement for universal and commercial banks would be lowered to 15 percent as of the first week of November.
Between May and July this year BSP also lowered its reserve requirement in three stages by 200 basis points and the bank’s governor, Benjamin Diokno, has said he aims to lower the rate to a single digit by 2023.
For thrift banks the reserve requirement will be lowered to 5.0 percent from 6.0 percent and for rural banks to 3.0 percent from 4.0 percent.
In addition to boosting liquidity in the domestic markets, BSP said the cut in the reserve requirement was in line with its agenda to reform the financial sector and make it more efficient by lowering the costs of financial intermediation.
On Sept. 26 BSP cut its policy rates, including the overnight reserve repurchase rate (RRP) by 25 basis points to 4.0 percent, to reinforce market confidence amid a benign outlook for inflation.
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BSP also lowered its forecast for inflation to average 2.5 percent this year, down from the August forecast of 2.6 percent, in the lower end of the bank’s inflation target range of 3.0 percent, plus/minus 1 percentage point.
Inflation in the Philippines has been trending downward since hitting a 10-year high of 6.7 percent in September and October last year in response to new taxes and higher food prices, and fell to 1.7 percent in August from 2.4 percent in July.
The economy of the Philippines slowed to an annual rate of 5.5 percent in the second quarter from 5.6 percent in the first quarter, partly due to a delay in passing a 2019 national budget that includes funds for President Rodrigo Duterte’s ambitious “Build, Build, Build” infrastructure program.
