Bangko Sentral ng Pilipinas (BSP) on Tuesday ordered the release of more liquidity into the local economy, this time through a reduction in the reserve requirement of the country’s smaller financial institutions.
In a release, Bangko Sentral ng Pilipinas (BSP) Gov. Benjamin Diokno declared a 100-base-point reduction in thrift, rural and cooperative bank reserve requirements effective July 31, 2020.
With this fall, thrift banks’ reserve requirements will drop to 3 percent. Meanwhile, those for and rural and cooperative banks will drop to 2 percent.
It moves that will release roughly P10 billion in cash into the economy, the chief of the central bank said.
“The reduction is expected to increase these banks ‘ lending ability to meet funding needs of their micro, small and medium-sized enterprises as well as rural community-based clients,” he explained. “This would also help lower the costs of intermediation and alleviate the financial burden faced by customers of those banks.”
Coronavirus Pandemic Affects the BSP
Earlier this year, the central bank’s policy-making Monetary Board approved a 200-basis-point reduction in the reserve requirements of universal. And then, commercial banks and non-bank financial institutions with quasi-banking functions.
Diokno said the latest decrease was also part of the BSP’s omnibus package of reforms aimed at assisting the banking public with their liquidity requirements. It was during the ongoing coronavirus pandemic and facilitating the post-crisis transition to a sustainable recovery.
Last week the central bank noted that cash pumped into the local financial system helped stabilize the conditions of domestic liquidity. And then, made funding available to borrowers who needed it during this public health crisis.
Diokno pointed to the latest money supply data. It showed a 16.6-percent expansion in May to about P13.7 trillion. The fastest pace of domestic liquidity growth since February of this year.
To date, the various steps taken by the central bank have released a total of P1.3 trillion into the financial system — equivalent to 6.4 percent of the gross domestic product of the country.
Follow and join us on Youtube, Instagram, Facebook, and Twitter to be part of the trader community in Asia