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Economy

Philippine central bank cuts cash reserve requirements

BSP injects fresh liquidity into economy after growth slows to four-year low

The Bangko Sentral ng Pilipinas’ reserve requirement is one of the highest in the world, and Thursday's adjustment comes just days after the government said the economy expanded at a four-year-low.   © Reuters

MANILA -- The Philippine central bank cut the reserve requirement ratio for commercial banks to free up cash and help an economy that has grown at its slowest pace in four years.

Bangko Sentral ng Pilipinas Governor Benjamin Diokno said on Thursday the reduction -- by 200 basis points to 16% -- in cash reserves will be implemented in three phases through July, freeing up nearly 200 billion pesos ($3.8 billion) in liquidity for economic activity.

The new reserve requirement applies only to universal and commercial banks. The cash reserve ratios for other lenders, such as thrift banks and rural banks, which have a separate reserve requirement, will be tackled next week, Diokno said.

The Philippines' reserve requirement is one of the highest in the world, and the adjustment comes a week after the government reported the country's economy expanded at a four-year low -- to 5.6% -- in the first three months of 2019 amid a budget row that froze public spending on infrastructure early this year.

Just hours after last week's gross domestic product report, the BSP lowered its benchmark rate by 25 basis points to 4.5%, the first cut in nearly seven years. In 2016, the central bank cut its policy rate by 100 basis points to 3% when it shifted to a different interest rate system, but it said at the time that the move was an operational adjustment.

Ruben Carlo Asuncion, chief economist at UnionBank of the Philippines, said Thursday's move bodes well for the financial system and would help stimulate the economy.

"The cut is a very welcome development," Asuncion said. "It will definitely help and contribute to growth through added liquidity for more economic activities and expansion."

The move is in line with the central bank's goal to reduce the cash reserve ratio of banks to single digits by 2023. In 2018, Diokno's predecessor, the late Governor Nestor Espenilla, also cut banks' reserve requirement ratio by 200 basis points.

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