The Philippine central bank reduced the reserve requirement ratio of banks by 200 basis points, in order to boost domestic liquidity.
The cut in reserve requirement ratio of commercial banks will ensure sufficient liquidity to support the economic activity amidst this global pandemic due to the coronavirus, or covid-19, the Bangko Sentral ng Pilipinas, said in a statement on Tuesday.
The new ratio will take effect on March 30. The reduction is set to calm the markets and to encourage banks to continue lending to both retail and corporate sectors.
For further reserve requirement reductions, Governor Benjamin Diokno said, “The BSP will have to assess the impact of COVID-19 on the broader economy.”
He added that the behavior of banks, particularly their capacity to absorb, invest, and lend the freed-up liquidity, will likewise be a determining factor for further adjustments.
The BSP, on Monday, approved the purchase of PHP 300 billion government securities to provide extra lifeline to the national government. The government will use the funds to counter the impact of coronavirus disease 2019.
Last week, the central bank had reduced the interest rate by 50 basis points to 3.25 percent.
The National Economic and Development Authority reportedly said on Tuesday that the economy is set to contract this year as the spread of coronavirus hit tourism, consumption and trade.
The agency forecasts -0.6 percent to +4.3 percent economic growth in 2020. The government targets 6.5-7.5 percent growth this year.
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