BSP vows to avoid economic decline

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has vowed to do everything it can through a combination of monetary and fiscal policies to avoid a recession due to the impact of the coronavirus disease 2019 or COVID-19.

In a TV interview, BSP Governor Benjamin Dioko said the economy may contract this year instead of the previous estimate of a growth of between five and 5.5 percent.

“I think we are looking at maybe negative to maybe one percent given these developments,” Diokno said.

The BSP chief said the Philippines would likely post a three percent economic growth in the first quarter before recording a contraction in the second and third quarters due to the enhanced community quarantine.

Diokno said the economy has been resilient, posting positive GDP growth since the Asian financial crisis.

“We have 84 quarters of continued growth since the Asian financial crisis. I think the Philippines is resilient enough. I think, if we do the right thing, we can avoid a recession,” Diokno said.

For one, the BSP chief said the central bank could release another P200 billion to the financial system through another 200 basis points reduction in the reserve requirement ratio.

The BSP has decided to lower bank reserves by 400 basis points this year to soften the impact of the COVID-19 pandemic.

By reducing bank reserves as well as interest rates, more funds are made available for lending at a cheaper cost, thereby boosting consumption and investments for businesses, households and individuals.

The BSP unleashed a P300 billion stimulus package via the purchase of government securities from the Bureau of the Treasury (BTr) with a maximum repayment period of six months.

The fund generated from the quantitative easing, similar to the programs adopted by various central banks around the world led by the US Fed will be used to support the national government in countering the impact of the contagion.

It also decided to advance the remittance of P20 billion to the national coffers, although Republic Act 11211 that amended RA 7653 or the New Central Bank Act exempts it from paying dividend and instead use the amount to raise its capitalization to P200 billion from P50 billion.

The BSP has so far slashed interest rates by 150 basis points since May last year, almost reversing a tightening cycle that saw interest rates jump by 175 basis points due to an inflation breach.

For this year, alone the BSP has lowered benchmark rates by 75 basis points including a deeper 50 basis points cut last March 19 as a follow on to the easing cycle to soften the impact of the coronavirus pandemic.