May 06, 2014

BSP seen raising RRR again

According to an article from The Philippine Daily Inquirer, the BSP is expected toraise the reserve requirement ratios (RRR) of banks yet again. Five banks polled by the Inquirer were unanimous in saying that the BSP would likely raise the RRR of banks.

This will follow a previous increase in the RRR in 27 Mar 2014. Raising the RRR from 19% to 20% is expected to siphon off an estimated P60b in liquidity from banks. This move is viewed as a preemptive measure to contain domestic liquidity growth, which stood at 37% in January 2014.

Our take: In a previous report (BSP keeps policy rates steady, raises reserve requirement, 28 Mar 2014), we said that we expect a 1% RRR increase to have a minimal effect on banks. This is because of the high level of liquidity among banks.

Moreover, most local banks have strong and flexible balance sheets, allowing them to mitigate possible opportunity losses arising from policy changes. Nonetheless, we view positively the BSP’s move to control domestic liquidity growth as this can temper any excessive credit growth.

Moreover, it signals that the BSP is bent on making a smooth transition from monetary easing to monetary tightening. This will then buy banks more time to shift to prepare their books for a rising interest rate environment. – WealthSec