The Central Bank of the Philippines decided to reduce the level of the norm on the availability of mandatory reserves for financial institutions at the end of the month.

The statement of the relevant content was made by the head of the Central Bank of the Philippines Felipe Medalla. He also made it clear that the decision to ease the requirements concerning the minimum reserve base of banks hardly will way affect the interest rate, which will remain at the same level highly likely.

Bangko Sentral ng Pilipinas (BSP) reduces the reserve requirements of large banks by 250 basis points to 9.5%. The new norm will take effect from June 30. For digital banks, this ratio will be reduced by 200 basis points and will amount to 6%. In the case of charitable financial institutions, the reduction is envisaged at the level of 100 basis points to 2%. The relevant information is contained in the message of the Central Bank of the Philippines.

The financial regulator stated that changing the requirements for the volume of reserves does not mean making any adjustments to the BSP monetary policy. Also, the bank’s statement focuses on the fact that the reduction will coincide with the end of alternative ways to comply with the reservation requirements.

Medalla assumes that the monetary authorities will make a decision to keep the base rate at the current level after the cessation of the most intensive tightening of monetary policy over the past two decades, which was observed in May 2023. In his opinion, the pause in the actions on the movement of the interest rate is likely to continue, since the latest data fully justify and substantiate this scenario of financial behavior. He stated this during a conversation with media representatives.

The Monetary Board of the Central Bank of the Philippines will hold its next policy meeting on June 22. The financial regulator stated that the current strategy of its activities as one of the priorities determines the return of the inflation rate to the target level in the medium term. The Bank will continue to signal changes in the concept of monetary policy by making interest rate decisions.

The Central Bank of the Philippines had announced a few months earlier that it would cut its reserve norm for lenders in June due to declining inflation. Currently, the required reserve rate for large financial institutions is 12%.

Last month, Medalla announced a pause in the implementation of a policy to increase the growth rate of interest rates. The reasons for this decision, he called the weakening of inflationary processes and the decline in the dynamics of the development of the Philippine economic system.

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