BSP Expected to Cut Banks' Reserve Ratio

The Bangko Sentral ng Pilipinas (BSP) is likely to push ahead with a planned 200-basis-point (bp) cut in banks' reserve requirement ratio (RRR) as early as April, following its decision last week to keep policy rates steady.

- By KEISHA TA-ASAN

Citi economist for the Philippines Nalin Chutchotitham said reducing the RRR of big banks would support economic activity while having a limited impact on the exchange rate, unlike policy rate cuts that directly influence capital flows and currency movements.

"The recent RRR cut of 200 bp in October 2024 has likely provided an additional loosening effect on financial conditions, supporting credit growth and overall domestic demand," she said.

Nomura economists Euben Paracuelles and Nabila Amani also adjusted their RRR forecast, moving their expectation of a 200-bp cut to April from mid-2025.

"We think April is a plausible window, as demand for liquidity could pick up ahead of the midterm elections on May 12," they said, adding that the sequencing of RRR cuts before further rate reductions makes sense in improving monetary policy transmission.