Philippine central bank may cut reserve ratio: Medalla

Bloomberg

Incoming Philippine central bank governor Felipe Medalla said that the lenders’ reserve requirement ratio may be lowered this year to counter the impact of stimulus withdrawal.
The plan is to cut the ratio 2 percentage points to 10% about a month or two before a rule that allowed lending to small businesses be counted as compliance to the requirement expires in December, Medalla said in an interview on Tuesday.
“We will do what the common sense is, which is to replace the reserve eligibility with a cut,” Medalla said in his office in Manila.
Bangko Sentral ng Pilipinas has begun withdrawing relief measures made during the pandemic. Policy makers last month joined global central banks in raising interest rates to combat inflation, which surged to its fastest in more than three years in May.
Medalla, who is set to take over from Benjamin Diokno as governor on July 1, on Tuesday signaled at least two more rate hikes — in June and August. He currently sits as a board member of the central bank.
A 2 percentage-point RRR cut would release liquidity that is roughly equal to the total funds that is currently counted as alternative compliance, Medalla said. Any excess money supply may be mopped out by the central bank’s monetary operations, he said. Diokno, who will become finance secretary once the term of President-elect Ferdinand Marcos Jr. starts, had planned to lower the RRR to single digits by mid-2023.