No need to reduce banks' reserve requirements this year, according to BSP

The central bank will temporarily suspend its policy of reducing the amount of liquidity that banks must hold to focus on the fight against inflation, which is currently at its highest level for at least five years.

In a statement, Bangko Pilipinas Governor Nestor Espenilla Jr. said bank regulators "have done enough" after reducing banks' reserve requirements by two points this year

"This initiative could resume next year. ", he said through a note sent to reporters via instant messaging on Thursday.

Espenilla wants to reduce banks' reserve requirement ratios to one-digit levels to allow to the local economy to make better use of unproductive funds, but its initial measures – two cuts of one percentage point, the most recent being a week after the central bank raised its interest rates. interest – have caused confusion among banks questioning the timing of reserve reductions in a context of record inflation

The head of the BSP explained that that the reductions were "consistent with the strategy of gradual and gradual implementation of this important medium-term financial sector reform" and that the additional liquidity that the reserve reductions released into the financial system had been absorbed by the Open market of the central bank

were released into the local economy by the cuts to the twin reserves, which in turn were taken up by the BSP through its weekly auctions of term deposits, where she paid the banks exchange for depositing inactive funds back with the regulator.

Wednesday, the International Monetary Fund – at the end of its annual review of Phili The IMF's mission minister, Luis Breuer, said he was in favor of a break in reserve requirements. reductions because they have "caused communication problems".

PASB had previously insisted that reserve reductions should not be seen as part of the central bank's monetary policy operations. The regulator noted that even at the current level of 18%, Philippine banks' reserve requirements remained among the highest in the world and in fact constituted a tax on the Philippine economy that required more resources to develop.

The reserve requirement ratio of 200 basis points this year is already sending a credible and concrete signal to the financial system of BSP's commitment to structural reforms so that industry can be guided accordingly in the The development of their long-term strategic plans. "

" The goal of achieving single-digit reserve ratios at the end of my tenure is therefore quite achievable without sacrificing effective monetary control, "he added.

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