COVID measures free up P1.1 trillion into system — BSP

MANILA, Philippines — The monetary impact of the actions undertaken by the Bangko Sentral ng Pilipinas (BSP) to soften the blow of the economic fallout from the coronavirus disease 2019 or COVID-19 pandemic has reached close to P1.1 trillion.

BSP Deputy Governor Francisco Dakila Jr. said the monetary impact of the COVID-19 measures approved by the central bank’s Monetary Board is equivalent to 5.7 percent of the country’s gross domestic product (GDP).

Dakila told Senate committee on finance chairman Sonny Angara during a videoconference that the COVID-19 policy responses were aimed at cushioning the impact of the health crisis as the economy stood still after Malacañang placed the entire Luzon under enhanced community quarantine last March 16.

Dakila said the BSP slashed interest rates by 125 basis points so far this year that is expected to release a total of P33 billion or 0.2 percent of GDP into the financial system over the next 12 months.

For asset purchases, he said the central bank entered into a repurchase agreement with the Bureau of the Treasury for the acquisition of P300 billion worth of government securities or equivalent to 1.6 percent of GDP.

He said the Monetary Board also lowered the reserve requirement ratio by 200 basis points to 12 percent last March 30, releasing P200 billion or 1.1 percent of GDP into the financial system.

Dakila said other liquidity enhancing measures include the timely suspension of the term deposit facility (TDF) auctions since March 18, releasing P300 billion or 1.6 percent of GDP into the financial system, as well as the reduction of the volume of overnight reverse repurchase facility, freeing up P205 billion or 1.1 percent of GDP.

“We have also made adjustments with respect to our monetary policy instruments. We have to suspended our term deposit facility auctions because during ordinary times, when the situation is a surplus of liquidity in the system, then the central bank also siphons off some of this liquidity in order ensure that the liquidity does not a generate inflationary pressures,” he said.

The BSP resumed the weekly auction for term deposits but only for the seven-day tenor.

Likewise, Dakila said the central bank decided to remit P20 billion to the national coffers despite being exempted from declaring dividends by its amended charter under Republic Act 11211.

Meanwhile, BSP Governor Benjamin Diokno told a forum organized by the Financial Executives Institute of the Philippines (FINEX) last Thursday that the unwinding of the COVID-19 policy responses in preparation for the new economy must be done in a gradual, prudent and informed manner.

“(There is a need to) ensure that support is not withdrawn too early nor too late than what is optional for the economy,” Diokno said.

Diokno added that monetary authorities would ensure a smooth transition in winding down its time or state-bound measures when domestic developments warrant a scale-down of policy support as economic recovery gains traction.

“Exit strategy essentially entails reversion to policies that are consistent with long-run economic growth path. Nonetheless, we note that the winding down of support policies and regulatory measures too early or too late may be harmful and may significantly dampen economic recovery,” he said.

Economic managers, through the Development Budget Coordination Committee (DBCC,) see a strong rebound with a GDP growth of 7.1 to 8.1 percent next year from a projected contraction of two to 3.4 percent this year.