Philippines: BSP open to more interest rate cuts

• Feb 28, 2020

As COVID-19 spreads further

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) will consider more cuts in its key policy rate and banks’ required reserves if the economic impact from the novel coronavirus disease (COVID-19) is likely to be much worse than expected.

In a press conference, BSP Governor Benjamin Diokno said he remains committed to cutting interest rates by another 25 basis points this year after the quarter-point cut in February that brought the policy rate to 3.75 percent.

 “We have a lot of monetary space and fiscal space, so if things deteriorate much beyond what we have originally forecasted, we might consider additional cuts in reserve requirement or in the interest rate or policy rate,”  Diokno told reporters.

Diokno said  the   Monetary Board has slashed interest rates by 100 basis points since May last year, partially unwinding the tightening cycle that saw rates jump by 175 basis points in 2018.

Last Feb. 6, the central bank resumed its easing cycle by cutting interest rates by 25 basis points as a preemptive move to support market confidence amid higher prices and uncertainties brought about by the virus outbreak.

The BSP slashed interest rates by 75 basis points between May and September last year before adopting a prudent pause in November and December, keeping rates steady to allow previous monetary actions to work their way through the economy.

“I committed to 50 basis points this year. We’re down  by 25 basis points, so we still have 25 basis points. I’m not totally ruling out an additional cut more than 25 basis points this year. Definitely there will be another 25 basis points. I’m not ruling out 50 or 75 basis points,” Diokno said.

Aside from t rate cuts, the level of deposits banks are required to keep with the central bank was lowered as part of Diokno’s commitment to bring it down to single digit level by 2023.

The RRR for big and mid-sized banks was slashed by 400 basis points and for small banks by 200 basis points, freeing up about P450 billion to boost the economy.

“We’re looking at the behavior of banks, cause we found out that maybe they’re not ready to absorb the liquidity, so we’re looking at how much they can absorb cause most of it goes back to us anyway,” the BSP chief said.

Diokno said he prefers that banks lend it out the additional liquidity to firms and households.

“But the nature of a policy action is that there really is a delay, a lag time before you can actually digest the amount of liquidity you released in the system,” he said.

Diokno said the country’s GDP could grow by six percent this year amid the impact of the COVID-19 outbreak.

Source: https://www.philstar.com/business/2020/02/28/1996584/bsp-open-more-interest-rate-cuts