UPDATE 1-After rate cut, Philippine c.bank slashes RRR to boost liquidity

* C.bank will cut RRR in three stages totalling 200 bps
* RRR cuts to take effect in May-July
* Cuts to boost liquidity in financial system

(Adds details, background, analyst comments)
By Karen Lema
MANILA, May 16 (Reuters) - The Philippine central bank
announced on Thursday it will cut the amount of cash that banks
must hold as reserves in three steps to help boost liquidity as
economic growth slows.
Bangko Sentral ng Pilipinas (BSP), which cut its key
interest rate last week on expectations inflation will ease,
will lower the reserve requirement ratio (RRR) for banks by two
percentage points to 16% from May to July.
The first 100 basis point cut in RRR will take effect on May
31, another 50 basis point cut on June 28 and last 50 basis
point cut on July 26, BSP Governor Benjamin Diokno said in a
text message.
The announcement did not come as a surprise as some
economists had anticipated RRR cuts were forthcoming given the
tight liquidity conditions in the market.
"The central bank believed it was time to give the economy a
much needed breather especially with the inflation objective
well in hand," said Nicholas Mapa, economist at ING Bank in
Manila. "BSP looked to finally address the lack of funds
circulating in the system."
Money supply grew at its slowest in more than a decade in
March, rising 4.2 percent from 7.1 percent the previous month.
The RRR cuts are expected to free up around 190 billion
pesos ($3.62 billion) of additional liquidity into the financial
system, the central bank said.
The move would also help restore some of the liquidity
soaked up by the central bank's rate hikes last year. To rein in
red-hot inflation, it raised rates by a total 175 basis points.
The peso PHP= closed 0.6% weaker at 52.59 per dollar, its
lowest in two weeks.
Last week, the BSP cut its benchmark interest rate by 25
basis points to 4.50% PHCBIR=ECI , on cooling inflation
expectations and after the economy grew at its slowest pace in
four years in the first quarter. Inflation is expected to average 2.9% this year and 3.1%
next year, the central bank had said, well inside its 2-4
percent target for both years.
The amount of cash that banks must hold as reserves was cut
twice last year in line with a medium-term plan to bring the
ratio to a single digit and help bolster the country's economic
growth rate, which is slowing. Diokno has said the reserve requirement ratio will be in the
single digits before his term ends in 2023.
($1 = 52.52 Philippine pesos)