BSP Reduces Banks’ Reserve Requirements

The Bangko Sentral ng Pilipinas (BSP) announced a reduction in banks’ reserve requirement ratios (RRR) to lower financial transaction costs. The RRR for universal and commercial banks, as well as non-bank financial institutions with quasi-banking functions, will be reduced by 250 basis points. Digital banks will see a 200 basis point reduction, while thrift banks, rural banks, and cooperatives will face a 100 basis point cut.

The new rates, effective October 25, 2024, will bring the RRR for universal and commercial banks to 7%, for digital banks to 4%, for thrift banks to 1%, and for rural and cooperative banks to 0%.

The RRR refers to the portion of deposits that banks must keep and not lend out. Reducing the RRR will increase liquidity in the financial system, with an expected release of around ₱400 billion in funds for lending and investments. This is projected to boost demand for loans and contribute to economic growth.

BSP aims to lower intermediation costs and align reserve requirements with regional norms over time. The central bank will absorb the liquidity through measures such as BSP bills offered every Friday.