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September 26, 2022

Diokno is at it again

For the nth time, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the policy-setting Monetary Board (MB) is prepared to cut the banks’ deposit reserves as part of the commitment to bring the ratio down to single digit.

At the online press briefing on Thursday, Diokno said the planned cut in the banks’ reserve requirement ratio (RRR) has not been forgotten and remains one of the policy options.

“As mentioned before, the cut in RRR is in the agenda. We might do so in the second half of the year,” he reiterated.

The BSP chief has repeatedly indicated a willingness to cut the large expanded license and commercial banks’ RRR last set at 12 percent of deposits in 2000, in part because it is his personal commitment to bring the ratio down to single digit.

The RRR is that part of deposits the various banks may not lend to clients but instead hold in the central bank’s vaults as reserve and one of several mechanisms by which the BSP controls liquidity in the system.

But the lenders have since complained the country’s 12-percent RRR is not only a form of tax but one of the highest in the region.

That Diokno reiterated his willingness to cut the RRR is a form of forward guidance that at some point forward billions of pesos in fresh liquidity is released into the system and help ensure the country’s continued economic expansion down the line, experts said.

The potential for sustained growth, however, has to be balanced with the need to keep prices stable, which will remain elusive should liquidity levels prove too much and begin to stoke inflation instead.

“As always, our decisions on monetary policy stance going forward will continue to depend on data,” Diokno said.

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