Nomura sees BSP cutting RRR in April

February 19, 2025 | 12:00am

MANILA, Philippines — Nomura expects the Bangko Sentral ng Pilipinas (BSP) to further lower the reserve requirement ratio (RRR) as early as April, ahead of anticipated policy rate reductions later in the year.

In an interview on Money Talks, Nomura chief economist for ASEAN Euben Paracuelles said the Philippine central bank appears to be prioritizing liquidity injection through RRR cuts before easing policy rates.

This sequencing, he said, enhances policy transmission and provides greater support to the economy, which still requires accommodative measures.

“There might be a little bit of a preference to inject liquidity by the RRR cuts, which they’ve already done in October 2024,” he said.

“I think they’re doing more,” Paracuelles added.

The economist believes the BSP’s strategy is to first facilitate liquidity expansion through RRR reductions before lowering policy rates.

“RRR cuts and then policy rate cuts improve the transmission toward lending rates and therefore are a bit more supportive in terms of the overall feed-through to the economy,” he said.

Paracuelles sees April as a potential window for the next round of cuts, citing the need to counter possible liquidity tightening ahead of the country’s elections in early May.

BSP Governor Eli Remolona Jr. earlier said the central bank plans to cut lenders’ RRR in the first half by 200 bps, bringing big banks’ RRR to five percent from the current seven percent level.

Beyond domestic monetary policy, Paracuelles said there are concerns over the potential return of US tariffs under a second Trump administration, describing it as a persistent source of uncertainty for global markets.

“Not just the BSP, but a lot of central banks are taking into account the implications of the US tariffs under Trump 2.0,” he said, adding that the uncertainty could weigh on business sentiment and dampen economic growth.

While the BSP had previously held off on rate cuts amid global uncertainties, Paracuelles views this caution as a positive move.

“The uncertainty in itself is the one that’s going to create some downside pressure on growth,” Paracuelles said.

The BSP last lowered banks’ reserve requirements in October 2024, cutting big banks’ RRR by 250 basis points.

While the policy rate has remained unchanged since its last hike in December last year, Paracuelles expects easing to begin later this year, contingent on inflation remaining benign.