THE Bangko Sentral ng Pilipinas (BSP) may slash the reserve requirement ratio (RRR) before the end of the first half if inflation starts to slow down.
BSP Governor Felipe M. Medalla said the “likelihood” of the RRR cut happening before the end of June is “quite high.”
Medalla reiterated that they did not want to slash the RRR while the BSP is raising the interest rates so as not to confuse the market with its policy signals.
“It is hard to raise interest rates and cut reserve requirements. We should be able to do that because we can offset the cut in the RRR by increasing our borrowings,” he said in a television interview on Thursday.
“But given our situation, the last thing you want to do is to confuse the signals, so therefore when we are no longer under pressure to raise policy rates, then we will cut the RRR,” he added.
Medalla pointed out that it is not “healthy” to have a 12-percent RRR. Furthermore, Medalla explained that it is even more imperative to slash the RRR since the BSP has to end the temporary relief it extended to banks in meeting the RRR soon.
“We also had temporary relief measures, the loans to MSMEs as fulfillment of RRR. That is going to end and we have to replace that with whatever permanent measure, which is a cut in the RRR,” he explained.
Meanwhile, Medalla said the BSP will buy dollars to beef up its gross international reserves when the peso hits a “certain” exchange rate against the greenback.
“We buy when there are buying opportunities. At a certain exchange rate we will start buying,” he said.
“Our strategy is to let the markets determine the foreign exchange. If we think it is appreciating or overshooting on the appreciation side, then it is a good thing to start buying,” he added.
Image credits: Patrick Roque via Wikimedia Commons CC BY-SA 4.0
