Big banks’ reserve requirements ratio (RRR) could eventually drop to zero percent by 2028 or the end of the central bank governor’s term, according to Security Bank Corp.

Speaking to reporters on Wednesday, Feb. 26, Security Bank chief economist Angelo Taningco said he expects the Bangko Sentral ng Pilipinas (BSP) to bring RRR for commercial banks down to zero by the end of BSP Governor Eli M. Remolona Jr.’s term.

Just last week, the Monetary Board (MB) further relaxed RRRs across all banks, a move that swiftly followed its decision to leave the key interest rate unchanged at 5.75 percent despite market expectations of a quarter-point cut.

According to the BSP, the 200 basis point cut will be effective on March 28, a month away as of writing. Taningco said that reducing the rate every year until it reaches zero was “always part of the plan,” but the BSP’s timing was unexpected—“it happened earlier than anticipated.”

“For us, based on our forecast, there will still be cuts even in the next couple of years,” Taningco said. He expects another 200 bps cut in 2026, bringing the RRR rate to three percent.

This reduction is expected to continue through 2028, with a 150 bps cut in 2027 and another 150 bps in 2028—all these would bring the rate to zero “before his [Remolona’s] term ends.”

Further reduction of RRR for commercial banks has a “positive” impact on the banking industry, Taningco said, as it lowers friction costs and enhances financial intermediation, leading to more efficient capital use.

With banks serving as intermediaries between savings and lending, the expected move supports growth prospects by freeing up additional funds.

When the RRR was initially adjusted in October 2024, Security Bank estimated around ₱387 billion liquidity boost across all banks. For this latest round, Taningco expects approximately ₱325 billion to be released.

Taningco said the released liquidity is allocated partly to investment securities and partly to lending. While it doesn’t translate entirely into increased lending, it still contributes to some level of growth, though not significantly.

He explained that since excess liquidity can be inflationary, the RRR cuts are carried out gradually rather than in one big drop. A steep drop, he said, such as from five percent to zero, would inject trillions into the banking system at once but could potentially weaken the peso significantly.

Thus, the gradual approach helps maintain a balance between inflation control, economic growth, and exchange rate stability, preventing excessive currency volatility.

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.