By PressOnePH Business

By year-end, the Bangko Sentral ng Pilipinas (BSP) would have injected nearly enough fresh cash into the financial system to fund all projects of the government’s main infrastructure agency this year.

Banks would be allowed to free up to P400 billion from their vaults to lend to consumers and investors by December, when they complete adhering to the central bank’s unprecedented unwinding of reserve requirements, considered the highest in Southeast Asia.

On Thursday, BSP doubled-down on its November plans to ease bank reserves by 100 bps, ordering a similar cut in December for both big lenders and non-bank financial institutions “to ensure sufficient domestic liquidity in support of economic activity.”

The latest decision meant BSP’s dovish governor, Benjamin Diokno, followed through with his pledge to further trim the reserve requirement that he already slashed by 200 bps.

At an official estimate of about P100 billion per each 100-bps cut, the cumulative reduction on buffer funds would unleash P400 billion to the economy by December, an amount nearly matching this year’s P454.09-billion budget of the Department of Public Works and Highways (DPWH), the state’s primary infrastructure agent.

It is a welcome support to the local economy that grew by a four-year low of 5.5 percent in the second quarter, partly because the Duterte administration has struggled to spend on its “Build, Build, Build” infrastructure plans due to a four-month delay in enacting the budget.

Months since the outlay was passed, agencies like DPWH continued to suffer from a spending slump, pushing down capital outlays by 13.7 percent year-on-year as of August. The government said a recovery was likely realized last month.

Since taking office last March, Diokno, formerly in-charge of President Rodrigo Duterte’s high spending plans, has overseen a quick reduction on reserves, with a pledge to bring them down to single-digit levels by 2023.

For the big banks, this meant reserves of 18 percent of deposits at the start of the year were slashed to 16 percent by July, and would continue to go down to 15 percent in November and 14 percent in December.

Thrift and countryside banks as well as non-bank financial institutions — which have smaller reserves — must also trim their parked funds accordingly.

In cutting the reserve requirement, BSP is hoping that additional money would flow to more lending activities that boost economic activity and growth, a scenario yet to be seen despite earlier attempts to inject more cash into the financial system.

Latest BSP data showed bank lending went up 10.5 percent year-on-year in end-August, down from 11.1 percent the first seven months. Money supply growth decelerated to 6.2 percent during the same period.

An ideal scenario would be to grow money supply at least double that of nominal growth to ensure sufficiency of resources on funding economic activities. Nominal growth, as measured by gross domestic product, hit 7 percent as of the first half.