Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. said that further cuts in banks’ reserve requirement ratio (RRR) may happen next year as the central bank looks to ramp up its liquidity management and make the yield curve more reliable.

“It might be for next year. We are trying to make the yield curve more reliable, which means managing liquidity in the system better than before. The reserve requirement is one factor in that,” Remolona said during a press briefing on Friday, May 23, when asked if the BSP has plans to trim the ratios this year.

“So far, we’ve been trying to manage liquidity by issuing our own BSP bills. We’ve been issuing large amounts of BSP bills in an effort to absorb the liquidity in the system,” Remolona further said.

Remolona explained that cutting RRR “expands liquidity that’s in the system. So we’re trying to manage that.”

An alternative measure to issuing BSP bills, he said, is selling the Treasury securities that the central bank holds. “That has the same effect on liquidity,” he noted.

To recall, the ratio for big banks was slashed by 200 basis points (bps) to five percent from seven percent in February this year. The ratio for digital banks was shaved by 150 bps to 2.5 percent from four percent; and for thrift banks, it was reduced by 100 bps, bringing it down to zero.

Security Bank chief economist Angelo Taningco earlier said that RRR could eventually drop to zero percent by 2028 or the end of the Marcos administration. He had said that gradually cutting the rate until it reaches zero was always the plan, but the BSP move in the first quarter was unexpected.

Less than two years into his term, Remolona was able to reduce bank reserves to five percent, down from 9.5 percent when he took office in June 2023.