MANILA, Philippines — Major players in the country’s banking industry said the plan to gradually lower the level of deposits that banks are required to maintain with the central bank would help sustain the strong economic expansion.

BDO Unibank Inc. of retail and banking magnate Henry Sy and Ayala-led Bank of the Philippine Islands (BPI) said the planned reduction of the reserve requirement ratio (RRR) for banks would release at least P700 billion in idle cash into the financial system over the medium term.

Pedro Florescio, executive vice president and treasurer at BDO, said the said planned lowering of the RRR by the Bangko Sentral ng Pilipinas (BSP) is vital in improving the lending capacity of banks.

“Lowering the RRR will allow banks to boost their lending capacity, providing a continuous supply of credit for consumers and businesses,” Florescio said.

He said the move would boost the lending capacity of banks to consumers and businesses and thereby bolster the economy.

“This will also open more opportunities for the banks to reach to out to more clients and enhance financial inclusion,” he said.

The RRR is the percentage of bank deposits and deposit substitute liabilities that banks maintain or deposit with the central bank. The Philippines has the highest ratio in the region since it was raised to 20 percent in May 2014.

Adjusting policy settings such as the RRR of banks reduces the intermediation costs while also controlling liquidity. A one percentage-point reduction or increase releases or siphons off about P90 billion worth of liquidity into the financial system.

Latest data from the central bank showed liquidity, or the amount of money circulating in the financial system, rose 14.5 percent to P10.14 trillion while credit grew 21.1 percent to P6.76 trillion in September.

BPI executive vice president and treasurer Antonio Paner said the effect of the lowering of the RRR could be proactively managed by monetary authorities.

“At the current condition, there will be minimal inflationary effect because the reduced cost of funds will help reduce cost push inflation,” he said.

The BSP is well-equipped and could use other monetary tools to manage the impact on price changes, according to Paner.

Earlier, BSP Governor Nestor Espenilla Jr. said he would like to see the RRR reduced to a single digit level.

“The RRR is something that is would like to personally see to single-digit level. But there is a game plan for it. So our game plan is to do it in such a way to avoid the situation- that we are unleashing too much liquidity that the economy is unable to absorb,” Espenilla said during the 43rd Philippine Business Conference and Expo last Oct. 18.