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Philippines: Liquidity not bothering BSP
MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) is in no rush to siphon off the extra liquidity it injected into the financial system, even as it starts to unwind some of the measures it implemented to cushion the impact of the pandemic on the economy.
According to BSP Governor Benjamin Diokno, the central bank has not started to siphon off the P1.3 trillion in additional liquidity that it has injected into the market through the COVID-19 measures.
“Not yet. These reconfigurations are operational adjustments that are meant to provide better traction on short-term market interest rates while keeping monetary policy accommodative,” Diokno said.
He said the central bank remained mindful of the need to reduce borrowing costs to support Filipino businesses and households affected by the containment measures put in place to slow the spread of the virus.
The government has relaxed the lockdowns with the shift of the National Capital Region (NCR) to the general community quarantine on June 1 from enhanced community quarantine.
The Monetary Board has slashed interest rates by 175 basis points, including the surprise 50 basis points cut last June 25 which brought the overnight reverse repurchase rate to at an all-time low of 2.25 percent.
“These policy rate cuts could lead to an expansion in domestic liquidity by up to P46.2 billion in the next 12 months, all things held constant,” he said.
The BSP has also lowered the reserve requirement ratio for big banks by 200 basis points on March 30, freeing up P200 billion into the financial system to boost economic activity.
Other measures include the temporary suspension of the term deposit facility (TDF) auction, the lowering of the volume of the overnight reverse repurchase facility, the P300 billion repurchase agreement with the Bureau of the Treasury, the purchase of government securities in the secondary market, allowing the use of loans for micro, small, and medium enterprises (MSMEs), as well as large enterprises, as alternative compliance to reserve requirement, among others.
Diokno said the various liquidity measures that have been deployed have started to work with the money supply in the financial system expanding by 16.6 percent to P13.7 trillion in May.
Diokno said there have been improvements in domestic liquidity dynamics and market functioning as seen in the oversubscription in the government’s primary auctions for government securities as well as the central bank’s facilities, indicating the BSP now has room to recalibrate its monetary operations.
The central bank has resumed the auction of the seven, 14, and 28-day term deposits and doubled the volume of the overnight reverse repurchase facility back to P200 billion.
“The adjustments to our monetary operations, in line with the gradual reopening of the economy, should help facilitate the transmission of our accommodative stance to lower market rates, increased lending, and ultimately to more robust economic activity,” Diokno said.
Looking ahead, the BSP is confident that domestic liquidity and credit would remain adequate in the coming months.
“As the economy transitions into new operating conditions, the BSP will continue to support the national government’s broader efforts to mitigate the harm done by the health crisis on lives, jobs and livelihoods,” he said.
Source: https://www.philstar.com/business/2020/07/20/2029164/liquidity-not-bothering-bsp