{"id":6834,"date":"2025-01-01T19:49:33","date_gmt":"2025-01-01T18:49:33","guid":{"rendered":"https:\/\/wsj-crypto.com\/?p=6834"},"modified":"2025-01-01T19:49:33","modified_gmt":"2025-01-01T18:49:33","slug":"gradual-approach-needed-for-rrr-adjustments-say-analysts","status":"publish","type":"post","link":"https:\/\/wsj-crypto.com\/index.php\/2025\/01\/01\/gradual-approach-needed-for-rrr-adjustments-say-analysts\/","title":{"rendered":"Gradual Approach Needed for RRR Adjustments, Say Analysts"},"content":{"rendered":"\n<p class=\"p2\">By <b>Luisa Maria Jacinta C. <\/b><span class=\"s3\"><b>Jocson, <\/b><\/span><i>Reporter<\/i><\/p>\n<p class=\"p4\"><span class=\"s4\">ADDITIONAL REDUCTIONS to banks\u2019 reserve requirement ratio (RRR) ought to be <\/span><span class=\"s5\">progressive to prevent exacerbating inflation, <\/span><span class=\"s4\">analysts suggested. <\/span><\/p>\n<p class=\"p5\">\u201cLowering RRRs to minimal figures gradually is logical to align it with regional counterparts and enhance the competitiveness of the banking sector,\u201d Nomura Global Markets Research analyst Euben Paracuelles stated in an e-mail. \u201cRRR acts as a levy on financial intermediation.\u201d<\/p>\n<p class=\"p5\">\u201cHowever, I do not believe that drastic RRR reductions should be expedited. BSP\u2019s gradual strategy is suitable as it permits a recalibration that aligns with existing economic conditions and the inflation forecast,\u201d he added.<\/p>\n<p class=\"p5\">The Bangko Sentral ng Pilipinas (BSP) diminished the RRR for universal and commercial banks as well as nonbank financial institutions possessing quasi-banking functions by 250 basis points (bps) to 7% from 9.5%, effective last October.<\/p>\n<p class=\"p5\"><span class=\"s5\">It also reduced the RRR for digital banks by 200 bps to 4% and for thrift banks by 100 bps to 1%. Rural and cooperative banks\u2019 RRR was also lowered by 100 bps to 0%. <\/span><\/p>\n<p class=\"p5\">\u201cWe must all recognize that every cut in the RR translates to inserting hundreds of billions of pesos into the system,\u201d GlobalSource Partners country analyst Diwa C. Guinigundo, a former BSP deputy governor, stated in a Viber message.<\/p>\n<p class=\"p5\">The RRR signifies the fraction of reserves that banks must retain to ensure they can meet obligations in the event of unexpected withdrawals. When a bank is mandated to hold a reduced reserve ratio, it gains greater funds to allocate to borrowers.<\/p>\n<p class=\"p5\">From a peak of 20% in 2018, the central bank has since lowered reserve requirements to single-digit proportions.<\/p>\n<p class=\"p5\"><span class=\"s6\">\u201cOverall, we are confident that the BSP is fully aware of both the liquidity and inflationary effects of excess liquidity in the system, which the BSP itself is constantly absorbing through its open market operations window,\u201d Mr. Guinigundo remarked. <\/span><\/p>\n<p class=\"p5\">\u201cWhile it is of lesser significance, there is always a cost related to managing liquidity and inflation,\u201d he added.<\/p>\n<p class=\"p5\"><span class=\"s6\">BSP Governor Eli M. Remolona, Jr. has indicated that they aim to reduce large banks\u2019 RRR to as low as zero before his term concludes in 2029. <\/span><\/p>\n<p class=\"p5\"><span class=\"s6\">He previously stated that the country\u2019s reserve requirements remain among the highest in the region.<span class=\"Apple-converted-space\">\u00a0 \u00a0<\/span><\/span><\/p>\n<p class=\"p5\"><span class=\"s6\">\u201cThe reduction in RR to nearly zero is specifically intended to create an equal playing field between banks subject to mandatory RR and nonbanks which are exempt,\u201d Mr. Guinigundo expressed. <\/span><\/p>\n<p class=\"p5\">He mentioned the presumption is generally that banks are \u201cforever liquid.\u201d<\/p>\n<p class=\"p5\">\u201cHowever, liquidity could pose a risk to banks especially when they are over-leveraged. Thus, RR serves as a regulatory assurance that in moments of liquidity crises, banks have a resource to draw liquidity from.\u201d<\/p>\n<p class=\"p5\">\u201cEffective oversight of banks could indeed render RR unnecessary, although this is not consistently the situation even in more advanced economies,\u201d he continued.<\/p>\n<p class=\"p5\">Analysts indicated that further reductions to the RRR could also aid in reinforcing economic expansion.<\/p>\n<p class=\"p5\">\u201cAnother aspect of RR reduction is the potential objective of BSP to inject further liquidity into the system, enhance the credit transmission of monetary policy, and invigorate economic activities,\u201d Mr. Guinigundo remarked.<\/p>\n<p class=\"p5\">\u201cThe BSP might be striving to facilitate economic growth now that inflation appears to be stabilizing recently.\u201d<\/p>\n<p class=\"p5\">The Philippine economy increased by a less-than-expected 5.2% in the third quarter, down from the adjusted 6.4% growth in the second quarter and 6% a year prior.<\/p>\n<p class=\"p5\">This brought the average gross domestic product for nine months to 5.8%, slightly below the 6-6.5% full-year objective.<\/p>\n<p class=\"p5\"><span class=\"s5\">Meanwhile, the latest statistics from the local statistics bureau indicated inflation averaged 3.2% over the 11-month period, aligning with the BSP\u2019s full-year inflation forecast and comfortably within the 2-4% target. <\/span><\/p>\n<p class=\"p5\">\u201cThe critical point is to direct these liquidity injections from RRR reductions towards bank lending for productivity-boosting investments such as infrastructure and agricultural modernization,\u201d Mr. Paracuelles stated.<\/p>\n<p class=\"p5\">\u201cThis would enhance potential growth, alleviate supply-side constraints, and subsequently relieve inflation pressures,\u201d he added.<\/p>\n<p class=\"p5\">Nomura in a recent report expressed that it predicts the central bank will implement a 200-bp reduction to major lenders\u2019 RRR by mid-2025. This would adjust the ratio to 5%.<\/p>\n<p class=\"p5\">\u201cFrom the perspective of the BSP, these reductions align with its longer-term aim of lowering the RRR to single-digit levels and assisting in further enhancing the transmission of its policy rate cuts by improving liquidity conditions,\u201d it noted.<\/p>\n<p class=\"p5\">Nomura highlighted the \u201cswifter and more comprehensive\u201d transmission of the BSP\u2019s tools and policies amidst its structural reforms.<\/p>\n<p class=\"p5\">\u201cThe availability of these instruments has enabled the BSP to resume RRR reductions\u2026 with an estimated liquidity injection exceeding 1% of GDP, coinciding with the BSP\u2019s rate reductions, thereby enhancing transmission further.\u201d<\/p>\n<p class=\"p5\">In a separate report, the International Monetary Fund (IMF) indicated that the reduction in RRR would <span class=\"s7\">result in a \u201cwelcomed decrease in fi<\/span>nancial intermediation expenses and better align reserve requirements with regional counterparts.\u201d<\/p>\n<p class=\"p5\">\u201cAlterations in the reserve requirement ratio must be incorporated into the overarching monetary policy stance and synchronized with any modifications in the size of the BSP balance sheet,\u201d it added.<\/p>\n<p><br \/>\n<br \/><a href=\"https:\/\/www.bworldonline.com\/top-stories\/2025\/01\/02\/644356\/rrr-cuts-should-be-gradual-analysts\/\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>By Luisa Maria Jacinta C. Jocson, Reporter ADDITIONAL REDUCTIONS to banks\u2019 reserve requirement ratio (RRR) ought to be progressive to prevent exacerbating inflation, analysts suggested. \u201cLowering RRRs to minimal figures gradually is logical to align it with regional counterparts and enhance the competitiveness of the banking sector,\u201d Nomura Global Markets Research analyst Euben Paracuelles stated<\/p>\n","protected":false},"author":3,"featured_media":6835,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[25],"tags":[683],"class_list":["post-6834","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy-and-markets","tag-return-a-list-of-comma-separated-tags-from-this-title-rrr-cuts-should-be-gradual-analysts"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.3 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Gradual Approach Needed for RRR Adjustments, Say Analysts - WSJ-Crypto<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/wsj-crypto.com\/index.php\/2025\/01\/01\/gradual-approach-needed-for-rrr-adjustments-say-analysts\/\" \/>\n<meta property=\"og:locale\" content=\"it_IT\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Gradual Approach Needed for RRR Adjustments, Say Analysts - WSJ-Crypto\" \/>\n<meta property=\"og:description\" content=\"By Luisa Maria Jacinta C. Jocson, Reporter ADDITIONAL REDUCTIONS to banks\u2019 reserve requirement ratio (RRR) ought to be progressive to prevent exacerbating inflation, analysts suggested. \u201cLowering RRRs to minimal figures gradually is logical to align it with regional counterparts and enhance the competitiveness of the banking sector,\u201d Nomura Global Markets Research analyst Euben Paracuelles stated\" \/>\n<meta property=\"og:url\" content=\"https:\/\/wsj-crypto.com\/index.php\/2025\/01\/01\/gradual-approach-needed-for-rrr-adjustments-say-analysts\/\" \/>\n<meta property=\"og:site_name\" content=\"WSJ-Crypto\" \/>\n<meta property=\"article:published_time\" content=\"2025-01-01T18:49:33+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/wsj-crypto.com\/wp-content\/uploads\/2025\/01\/Peso-currency-Phl-flag-300x200.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"300\" \/>\n\t<meta property=\"og:image:height\" content=\"200\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"wsjcrypto\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Scritto da\" \/>\n\t<meta name=\"twitter:data1\" content=\"wsjcrypto\" \/>\n\t<meta name=\"twitter:label2\" content=\"Tempo di lettura stimato\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minuti\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/wsj-crypto.com\/index.php\/2025\/01\/01\/gradual-approach-needed-for-rrr-adjustments-say-analysts\/\",\"url\":\"https:\/\/wsj-crypto.com\/index.php\/2025\/01\/01\/gradual-approach-needed-for-rrr-adjustments-say-analysts\/\",\"name\":\"Gradual Approach Needed for RRR Adjustments, Say Analysts - 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