The Monetary Board announced today the reduction in the reserve requirement ratio by one (1) percentage point as an operational adjustment to support the BSP’s shift toward a more market-based implementation of monetary policy as well as its broad financial market reform agenda. The reduction will apply to the reservable liabilities of all banks and non-bank financial institutions with quasi-banking functions with reserve requirement currently at twenty (20) percent.
In deciding to reduce the reserve requirement ratios, the Monetary Board reaffirms the BSP’s commitment to gradually lessen its reliance on reserve requirements for managing liquidity in the financial system. The Monetary Board believes that the BSP has attained sufficient progress in its shift towards the use of market-based monetary instruments since the adoption of the interest rate corridor (IRC) framework in June 2016. Even as the BSP continues to refine its instruments and operations under the IRC, the Monetary Board observed that the BSP now has ample scope to mitigate the potential liquidity impact of a phased reduction in the reserve requirement via offsetting auction-based monetary operations.
At the same time, the Monetary Board noted that the reduction in reserve requirements will help mobilize liquidity in support of economic activity as well as capital market development over the medium term.
The reduction in the reserve requirement ratios shall take effect on the reserve week beginning on 2 March 2018.