Effective Oct. 25, 2024, the new RRRs will bring the ratios to 7 percent for universal and commercial banks; 4 percent for digital banks; 1 percent for thrift banks, and zero for rural and cooperative banks, the central bank said in a statement Friday afternoon.
This policy is expected to lower intermediation costs and reduce borrowing costs for consumers and businesses, the regulator added.
The reserve requirement represents the amount of deposits that banks must keep liquid and are prohibited from lending out to borrowers. Each 1 percent reduction in bank reserves releases an estimated P130 billion of cash into the local financial system.
The BSP highlighted that the move aligns with its ongoing efforts to improve financial market efficiency and reduce distortions.
By reducing the reserve requirements, banks will have more liquidity to extend credit, potentially improving loan availability and lowering interest rates. This development is seen as a means to enhance financial service pricing across the country.
With inflation expected to remain within target, the BSP will continue to monitor economic conditions and reassess the need for further reserve requirement reductions in line with regional norms over the medium term.
This policy shift is expected to play a key role in supporting economic growth and stimulating investments in the coming years.
The central bank’s last reserve requirement adjustment was a 250-basis point cut made in June 2023.
