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Philippines: BSP likely to keep rates steady
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is likely to keep interest rates steady as it saves monetary ammunition amid the economic fallout from the coronavirus disease 2019 or COVID-19 pandemic.
BSP Governor Benjamin Diokno said in a television interview aired on ABS-CBN News Channel that it may be better for the BSP to hold on to current benchmark rate to assess the impact of previous monetary actions.
“At the moment, I think it is better that we may hold on to where we are right now, so that if worse comes to worst, we have additional bullets,” Diokno said.
The BSP has been doing the heavy lifting to soften the blow of the unprecedented health and economic crisis, slashing interest rates by 125 basis points to an all-time low of 2.75 percent and lowering the reserve requirement ratio by 200 basis points to 18 percent.
“The policy cut is meant to help the banks go through this crisis and in turn help their borrowers, individuals and the firms. We will balance. We will look at the need for it,” he said.
The BSP chief said loans extended to micro, small and medium enterprises (MSMEs) as well as large companies that are not part of conglomerates would serve as an alternative compliance to RRR until December 2022 instead of December 2021.
Diokno said the Monetary Board has approved the renewal of a P300 billion repurchase agreement with the Bureau of the Treasury by another three months.
In all, the COVID-19 measures of the BSP have unleashed P1.1 trillion into the financial system to cushion the impact of the pandemic and at the same time help jumpstart the economy that ground to a halt due to the community quarantine.
The next rate-setting meeting of the BSP is scheduled on June 25 after it cancelled the May 21 meeting as it held its first ever off-cycle meeting on April 16.
“We are still looking at data. If there is a need for further loosening, we will apply the full powers of the central bank,” he said.
Although inflation eased for four straight months to a six-month low of 2.1 percent in April, Diokno said there are upside risks including the recovery in oil prices after collapsing early this year as well as the increasing rice prices in the world market.
However, ING Bank Manila senior economist Nicholas Mapa believes otherwise and expects the BSP to cut interest rates on June 25 amid the decelerating inflation and the need to provide additional stimulus to an economy headed to a recession while unemployment rate surged to a record 17.7 percent.
“We believe that the central bank will carry out at most a 25 basis points rate cut before pausing for the rest of the year to keep real policy rates positive,” Mapa said.
Diokno expects the economy to start picking up in July as the lockdown in most parts of the country were loosened with the shift to the general community quarantine starting this month.
Source: https://www.philstar.com/business/2020/06/09/2019529/bsp-likely-keep-rates-steady