MANILA — Ayala-led Bank of the Philippine Island (BPI) forecasts a cut in the Bangko Sentral ng Pilipinas’ (BSP) reserve requirement ratio (RRR) during the rate-setting meeting of its policy-making Monetary Board (MB) on Thursday.
In a research note, the bank said the BSP may now opt to cut the RRR since it has been seven months since it implemented the Interest Rate Corridor (IRC), which has so far mopped up a little over Php 500 billion from the system.
Citing a statement by central bank Deputy Governor Diwa Guinigundo, the study said it would take around six to seven months before the BSP consider slashing money supply gathered through the RRR.
It also explained that when the BSP implemented IRC in June 2016, monetary officials said they need to see migration of around Php 500 billion from the overnight deposit facility (ODF) to the term deposit facility (TDF), which is part of the IRC implementation, before any decision on the RRR.
”It’s been seven months since June 2016 and we’ve seen roughly Php 530 billion shifted over from the OFD into the TDF. Now would be a great time to slash the RRR by 200 bps (basis points) and move the BSP from what (BSP Governor Amando M.) Tetangco termed as the “high Reserve Requirement Ratio Regime,” it said
”Thursday could be the perfect timing to cut rates as the peso is seen to move sideways in the near term with the market seeing a Fed (Federal Reserve) rate hike to be enacted sometime by mid-year,” it added. .
To date, BSP requires banks to meet a 20 percent RRR, one of the highest in the region.
The last time the BSP adjusted the RRR was in May 2014 when it was hiked by a percentage point to 20 percent for universal and commercial banks (U/KBs).
That year, the BSP hiked RRR by a total of 50 basis points, 25 basis points in March and May, as growth of domestic liquidity grew stronger than in the past years at a level of more than 20 percent.
Analysts have been projecting a cut in the BSP’s RRR given that it is one of the highest in the region and since the MB have been keeping rates steady for years now. Joann Santiago/PNA-northboundasia.com