Thailand
Philippines: BSP eyes more rate, bank reserves cuts
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is pursuing bolder moves such as deeper rate cuts and further lowering of the reserve requirement ratio of banks as authorities eye a soft landing from the serious repercussions of the unprecedented crisis brought about by the coronavirus disease 2019 or COVID-19 pandemic on the Philippine economy.
BSP Governor Benjamin Diokno, in a message sent to reporters on Easter Sunday, said a deeper cut is warranted in response to the expected sharp economic slowdown due to the health crisis.
“It is now clear that reverting to where we were in 2018 – policy rate at three percent – is no longer an appropriate policy goal. A deeper cut is warranted in response to the expected sharp economic slowdown,” he said.
Diokno said the central bank’s Monetary Board has so far slashed interest rates by 75 basis points this year, bringing the overnight reverse repurchase rate to 3.25 percent.
The benign inflation environment and slower than expected gross domestic product (GDP) growth allowed the BSP to cut interest rates by 150 basis points since May last year to boost market confidence and ward off potential spillovers from external headwinds, including the global virus outbreak.
“While the BSP has cut the policy rate by 150 basis points since I assumed office last year, the Philippines is now faced with a once-in-a-lifetime crisis,” he said.
Likewise, the BSP chief said a further reduction of the level of deposits banks are required to keep with the central bank is forthcoming to free up much needed funds to boost the economy.
Businesses have ground to a halt as Malacañang has instructed Filipinos to stay at home with the imposition of an enhanced community quarantine in Luzon to prevent further spread of the dreaded disease. The lockdown has been extended up to April 30.
The BSP’s Monetary Board has authorized Diokno to lower the RRR by a maximum of 400 basis points, half of which, or 200 basis points, took effect last March 30 releasing P200 billion into the financial system to allow banks to lend more to businesses and individuals affected by the coronavirus pandemic.
“I’ve cut it by 200 basis points recently, the additional 200 basis points cut is forthcoming based on available data, the needs of the economy, and the utilization of the additional liquidity,” the BSP chief said.
The RRR has been reduced by 800 basis points to 12 percent from a high of 20 percent in early 2018 as Diokno committed to bring down the level to single digit by the end of his term in the middle of 2023.
“These new realities call for bolder, but appropriate moves on the part of the BSP. The challenge is to cushion the impact of the economic slowdown on people, firms and the financial system,” Diokno said.
Diokno expects the Philippine economy to go into technical recession, booking negative growth in the second and third quarters before picking up in the fourth quarter this year.
The BSP chief is looking at a “negative to maybe one percent growth this year,” while the National Economic and Development Authority (NEDA) is projecting a -0.6 to 4.5 percent GDP growth for 2020.
Economic managers, through the Development Budget Coordination Committee (DBCC), originally penciled a GDP expansion of 6.5 to 7.5 percent this year after slowing down to 5.9 percent last year from 6.2 percent in 2018 due to the soft global markets amid the US-China trade war, the tightening cycle by the BSP in 2018 and the delayed passage of the 2019 national budget.
“The monetary authorities” job, in coordination with fiscal authorities, is to manage a soft landing and ensure that economic takeoff begin quickly once the pandemic fades. BSP will continue to be data dependent keeping in mind that monetary policy works with a lag,” Diokno said.
Source: https://www.philstar.com/business/2020/04/13/2006861/bsp-eyes-more-rate-bank-reserves-cuts