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INTRODUCTION
The reserve requirement is one of the tools used by the BSP to manage
requirement ratio for banks by 3 percentage points in what officials said was
part of an overall effort to rationalize the way liquidity in the economy was
being managed.
With the reduction, the reserve will go down to 18 percent from the
current 21 percent. The lower reserve requirement took effect last April 6,
2012.
The cut in the reserve requirement ratio comes with other measures
First, the BSP will no longer allow banks to keep a portion of the
reserves in their own vaults, which means all reserves will be kept at the
central bank. Under the old system, 10 percent of deposits are with the BSP
Second, the BSP would no longer pay interest on the reserves. Under
RESERVE REQUIREMENT
deposits with the BSP and therefore may not lend. Changes in reserve
percent per annum, while liquidity reserves are paid the rate on
the form of term deposits in the reserve deposit account (RDA) with the
INTERNATIONAL RESERVE
Any kind of reserve funds that can be passed between the central
as any local currency that has been issued as well as bank deposits.
well-known for his simple explanation for the cause of the Great
person's earnings, and when that person spends his or her earnings, he
the Great Depression hit, people's natural reaction was to hoard their
money. Under Keynes' theory, this stopped the circular flow of money,
Keynes' solution to this poor economic state was to "prime the pump."
itself. During the Great Depression, however, this was not a popular
III. ANALYSIS
The changes and the reserve cut were aimed at simplifying the reserve
growth. With the reduction in the reserve requirement ratio, the operational
changes should not affect banks' lending and deposit rates or their service
fees. The central bank will also stop paying interest on these funds set aside
by lenders under the new rules. It will also exclude banks' vault cash and
functions from eligible reserves. The central bank said it anticipated the
banks' intermediation costs, prompting the cut. The current reserve ratio of
banks is broken down into 10% statutory and 11% liquidity. The central bank
statutory reserves. Interest paid by the central bank on liquidity reserves are
percentage point.
IV.CONCLUSION
The new reserve requirement framework would have a neutral effect on the amount
of liquidity in the economy. This is because there is a belief among regulators that
banks do not religiously comply with the liquidity reserve rule, in that the money
banks that should be kept as reserves in their own vaults are actually being used for
operations, such as lending. Therefore, requiring banks to put all reserves to the
BSP and lowering the reserve requirement should not lead to an increase or
decrease in the overall liquidity in the economy. Also, inflation should also not be
affected. The BSP said the overhaul of the reserve requirement is not meant to
temper inflation nor to help accelerate growth in liquidity and growth of the
economy. The move was just intended to rationalize and simplify the reserve
requirement framework.
IV.RECOMMENDATION
A reduction in the reserve requirement results in higher amount of money
that will circulate in the economy. A cut in the reserve requirement will allow
banks to use idle liquidity for investment and increased lending, and earn
more. Banks may freely use of their funds for other investment activities that
increases the amount of loans that banks can make and increases the money
supply.
REFERENCES
http://economics.about.com/od/monetary-policy/a/The-Federal-Reserve-
System.htm
http://www.bsp.gov.ph/monetary/targeting.asp
http://business.inquirer.net/43259/bank-reserve-requirement-cut-to-18
http://www.wisegeek.org/what-is-keynesian-economics.htm
http://www.investopedia.com/terms/i/international-
reserves.asp#ixzz2NEuPA5fC
REACTION
PAPER
SUBMITTED BY:
CORTEZ, JEANETTE G.
BSBA-3
SUBMITTED TO:
Mr. Nemesio P. Villamil
INSTRUCTOR
March 2013
REACTION
PAPER
SUBMITTED BY:
CORTEZ, JEANETTE G.
BSBA-3
SUBMITTED TO:
Mr. Nemesio P. Villamil
INSTRUCTOR
March 2013