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Philippines – BSP: Further rate cuts to have limited impact
MANILA, Philippines — Any further monetary measures will continue to have limited impact unless business and consumer confidence recovers significantly, according to the Bangko Sentral ng Pilipinas.
BSP Governor Benjamin Diokno said the aggressive easing measures implemented by the central bank last year have limited impact on credit and private spending as the country implemented one of the longest and strictest lockdowns in the world amid the pandemic.
“The COVID-19 pandemic showed that the expected impact of policy rate adjustments and recent RRR cuts may take a longer time to materialize. Bank risk aversion and weak private sector demand largely because of the length and intensity of the lockdown dampened the impact of the BSP measures on credit and private spending,” Diokno said in a virtual press briefing.
As part of its COVID-19 response measures, the BSP slashed interest rates by 200 basis points, bringing the benchmark rate to an all-time low of two percent and lowered the reserve requirement ratios (RRR) for banks.
The BSP’s various liquidity-easing measures unleashed P2 trillion, or equivalent to 11 percent of gross domestic product (GDP), into the financial system.
Diokno said the BSP measures are only temporary and aimed at ensuring economic recovery and limiting potential scarring effects in the long run.
The BSP chief also said the limit to monetary policy underscores the need for a whole of government approach to address the impact of the COVID-19 crisis.
“In this regard, fiscal policy together with structural reforms must continue to share in the heavy lifting to quicken economic recovery by improving sentiment and demand. The BSP remains supportive of the various health and fiscal programs being rolled out by the national government in responding to the needs of households as well as businesses,” he said.
Despite the massive liquidity released into the financial system, bank lending contracted for the first time in 14 years after declining by 0.7 percent to P9.18 trillion in end- December last year as banks remain wary of borrowers’ capacity to pay amid the pandemic.
“Looking ahead, the BSP expects borrowing and lending activities to pick up in the coming months as the economy recovers with continuing monetary and fiscal policy support, progressive lifting of lockdown measures, and mass inoculation against COVID-19,” Diokno said.
Monetary authorities are pursuing a balance between providing non-inflationary monetary policy support to the economy and ensuring the continued soundness of the banking system.
“At this juncture, the BSP believes that we are not experiencing a trade-off between accommodative monetary policy and financial stability,” Diokno said.
Diokno said keeping an accommodative stance has been critical in ensuring favorable financing conditions to support economic activity and market sentiment during and even after the COVID-19 pandemic.
“The BSP shall remain vigilant to help ensure that its policy responses will neither lead to excessive inflation nor result in threats to financial stability,” he said.
Source: https://www.philstar.com/business/2021/02/19/2078737/bsp-further-rate-cuts-have-limited-impact