The Philippines’ largest financial institutions on Friday cheered the decision of financial regulators to progressively reduce the amount of cash banks are required to hold inactive in their vaults, saying the move will help boost the country’s economic growth.
In a statement, the Bankers Association of the Philippines (BAP)—the umbrella organization of the country’s biggest banks—said the move was also timely since the inflation rate in the domestic economy has fallen to a 16-month low as of April.
“The 2 percent cut in reserve requirements recognizes the BSP’s (Bangko Sentral ng Pilipinas) effectiveness in strengthening the country’s banking system,” BAP president Cezar Consing said. “It is a bold move, coming on the heels of a policy rate cut, but equally appropriate given how our financial system has advanced under the BSP’s stewardship.”
Previous to the Monetary Board’s Thursday decision to cut the reserve requirement to 16 percent from 18 percent staggered over three months, BSP Governor Benjamin Diokno said banks had made known to him their plight that the tight liquidity in the local market was driving up their borrowing and lending rates. As recently as last week, however, the central bank chief said that there were some officials within the organization who were unconvinced that the liquidity level in the financial system was tight.
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The BAP said that moving forward, it was optimistic that the reserve requirement ratio reduction, together with easing of policy rates, would sustain the growing economic momentum of the Philippines.
“The association is confident that the Bangko Sentral will continue to exercise its regulatory role effectively as catalyst to bolster economic growth and consumer confidence in the banking industry,” Consing said.
