Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said they are still considering a cut in banks reserve requirement over the medium term to long term once conditions
become more appropriate.

“It is the objective of the BSP to reduce the reserve requirement so that the financial intermediation cost of banks will also be reduced. But at this point, given the ample liquidity in the system, this may not be the most appropriate time to do it,” Guinigundo said.

BSP’s Monetary Board, after cutting interest rates by 200 basis points over a seven month period, decided to pause on its easing policy stance last August 20.

“We need to have more time to monitor the developments in the market particularly developments in terms of domestic liquidity. So far, we have released ample liquidity in the system (and) reducing the reserve requirement may not be exactly consistent with the kind of monetary policy stance that the Monetary Board had recently assumed,” the BSP official said.

BSP’s reserve requirement is 19 percent, of which 11 percent is liquidity reserve and eight percent is the regular reserve.

Guinigundo said the medium term program is to cut banks’ reserve requirement to single digit levels.

BSP started this program in 2002 but the intervening period prevented the BSP from doing so since commodity prices went up and they had to postpone reduction of reserves.

“Now, once conditions become more conducive to a review of reserve requirement then by all means the BSP will consider it,” Guinigundo said. “While we have been on an easing mode we need to think of exit strategies once recovery is stronger and the signs of inflation pressures also becomes more manifest in the market.” Guinigundo added that since they have reconsidered their easing policy, they need to revisit some of the measures implemented. “Once recovery (is more confirmed) we have to think of reversing some of the policy measures we put in place before. As you know reduction of reserve requirement will ease monetary policy rather tightening.”