Wednesday, May 29, 2024

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The BSP plans to reduce the RRR at an appropriate time.



The BSP is seeking to

The governor stated that the RRR for banks may be decreased in the future, potentially as soon as 2024.

“In regards to 2023, it is currently not being considered. The earliest possibility would be in 2024,” explained BSP Governor Eli M. Remolona, Jr. in response to inquiries about when the central bank would contemplate reducing the RRR.

He mentioned that we will attempt to decrease the RRR further when the timing is appropriate, but currently it is not suitable.

The Required Reserve Ratio (RRR) is the amount of reserves that banks are required to keep instead of using for lending purposes.

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In June, the BSP reduced the required ratio for large banks and nonbank financial institutions that have quasi-banking functions.

The BSP has decreased the RRR for major banks to a rate of 9.5%, which is 250 basis points lower than before. This marks a significant decrease from the previous high of 20% in 2018.

Mr. Remolona stated that he believes the percentage of 9.5% is still too high and puts us in the top bracket in Asia compared to our neighboring countries.

Mr. Remolona was asked about the potential terminal rate, to which he responded that the central bank is currently conducting research on the matter.

We implemented a high reserve requirement in the past as a means of regulating the amount of money in circulation, but this practice is no longer common. Currently, it simply creates a discrepancy in the system.fi

According to the speaker, financial intermediation creates an unnecessary gap between lending and deposit rates.

The Monetary Board maintained its hawkish stance for the fourth consecutive meeting by extending the policy pause, keeping the primary interest rate at 6.25%, which is the highest it has been in almost 16 years.


The central bank has increased interest rates by 425 basis points between May 2022 and March 2023 in order to control inflation.

According to Mr. Remolona, the current high interest rates do not seem to have affected the economy’s growth in the current year.

According to our analysis, there has been no impact on GDP growth so far. However, our goal is to maintain a balance between supply and demand. Based on our calculations, the result is 0%, indicating that we have reached an optimal level. This was stated by the speaker.

The economy of the Philippines expanded at a rate of 4.3% in the second quarter, falling short of expectations and marking its slowest growth in over two years. This is due to the effects of decreased consumer spending and government underspending.

In the initial six months of the year, the average GDP growth was 5.3%, falling short of the government’s full-year target of 6-7%. – Luisa Maria Jacinta C. Jocson