In a special Monetary Board (MB) meeting yesterday, the MB authorized Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno to reduce the reserve requirement (RR) ratios of BSP-supervised financial institutions of up to a maximum of 400 bps for 2020.
To properly calibrate reduction in the RR, the MB likewise authorized the BSP Governor to determine the timing, extent, and coverage of the reduction in the RR, taking into consideration the impact of COVID-19 on domestic liquidity. The authority given to the Governor to adjust the RR allows the BSP flexibility to promptly address any possible liquidity strain in the industry.
Pursuant to this authority, BSP Governor Diokno announced today a 200 bps reduction in the RR ratio of reservable liabilities of universal and commercial banks (U/KBs) effective 3 April 2020. Potential cuts on the reserve requirements for other banks and non-bank financial institutions will also be explored. The BSP will issue guidelines on these operational adjustments.
The RR cut is intended to calm the markets and to encourage banks to continue lending to both retail and corporate sectors. This will ensure sufficient domestic liquidity in support of economic activity amidst this global pandemic due to the Coronavirus Disease (COVID-19).
For further reserve requirement reductions, Governor Diokno said, “The BSP will have to assess the impact of COVID-19 on the broader economy.” He added that the behavior of banks, particularly their capacity to absorb, invest, and lend the freed-up liquidity, will likewise be a determining factor for further adjustments.