With the Philippine central bank holding off on slashing key interest rates amid global economic uncertainties, the World Bank expects its recent move to lower banks’ reserve requirements to stimulate lending activity.
According to the multilateral lender’s latest report on the Philippines’ monthly economic developments, the reserve requirement ratios (RRR) cuts, effective on March 28, will "facilitate more responsive lending conditions.”
On Feb. 13, the Bangko Sentral ng Pilipinas (BSP) decided to keep the key policy rates unchanged after the cumulative 75 basis point (bp) cut in its three consecutive policy meetings.
At present, the benchmark rate stands at 5.75 percent.
Despite the unexpected pause, the World Bank said “the subsequent reduction in bank reserve requirement ratios [RRR] increases credit availability.”
This is “expected to enhance the effectiveness of future rate cuts by facilitating more responsive lending conditions.”
While not a policy signal, the RRR cut is expected to boost the effectiveness of past and future rate reductions.
“The move is seen to enhance the impact of previous and upcoming interest rate cuts” by lowering lending costs and increasing loanable funds in the financial system.
Following the pause, BSP Governor Eli M. Remolona Jr. still signaled a continued monetary easing throughout the year. For 2025, the BSP’s Monetary Board (MB) has five remaining policy meetings: April, June, August, October, and December.
Economists previously said that about P330 billion worth of liquidity would be injected into the banking system after the 200 bp cut in commercial banks’ ratio.
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