Philippines to Cut Banks’ Reserve Ratio by 200 Bps, Diokno Says
Philippines to Cut Banks’ Reserve Ratio by 200 Bps, Diokno Says
(Bloomberg) -- The Philippine central bank is infusing more funds into the economy, slashing big lenders’ reserve requirement ratio by 2 percentage points and flagging more cuts to come.
“The reduction is intended to calm the financial markets and encourage banks to continue lending to both the retail and corporate sectors,” Governor Benjamin Diokno said in a mobile phone message Tuesday.
The RRR cut comes a day after the Bangko Sentral announced a plan to buy 300 billion pesos ($5.86 billion) worth of government debt as policy makers contend with the economic blow from coronavirus, and a week after it cut its policy interest rate by 50 basis points.
The Monetary Board is looking to reduce banks’ reserve ratio by as much as 400 basis points this year, the Bangko Sentral said in a statement Tuesday. Every 100-basis point cut to the proportion of funds banks are required to hold in reserve keep releases about 90 billion to 100 billion pesos into the financial system, Diokno said.
President Rodrigo Duterte in mid-March locked down the island of Luzon, the engine of the Philippine economy, to try to stop the spread of coronavirus. Early Tuesday the legislature granted Duterte extraordinary powers to fight the pandemic, including the ability to refocus funds from this year’s 4.1 trillion-peso ($80 billion) budget and “direct the operations” of businesses like hospitals, if necessary.
Tuesday’s announcement from the central bank to lower banks’ reserve ratio to 12% will take effect March 30, Diokno said.
“This is good news and what everybody is waiting for,” said Robert Ramos, chief investment officer at East West Banking Corp. in Manila. “The markets will take it positively as it will benefit the economy.”
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