The Bangko Sentral ng Pilipinas (BSP) has announced a significant reduction in the reserve requirement ratio (RRR) for various financial institutions, effective from March 28, 2025. This move is aimed at enhancing the flow of funds into more productive sectors of the economy. Universal and commercial banks, along with non-bank financial institutions with quasi-banking functions (NBQBs), will see their RRR drop by 200 basis points to 5 percent. Digital banks will experience a 150 basis point reduction, bringing their RRR to 2.5 percent, while thrift banks will have their RRR cut by 100 basis points to zero percent. These changes will apply to local currency deposits and deposit substitute liabilities. Reserve requirements are funds that banks must hold and not use for lending, ensuring they can cover sudden withdrawals. By adjusting these requirements, the BSP aims to manage liquidity and encourage banks to increase lending and investment activities. Michael Ricafort, chief economist at Rizal Commercial Banking Corporation, estimates that this adjustment could inject between PHP320 to PHP330 billion into the banking system. This influx of funds could be directed towards loans, bonds, equities, forex, and other assets, potentially leading to increased economic activity, more employment, and faster economic growth.
Philippine Central Bank Slashes Reserve Requirements to Boost Economic Growth
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