Financial regulators seek re-deployment of liquidity

Lawrence Agcaoili - The Philippine Star

MANILA, Philippines — Financial regulators want to further tap the liquidity in the system amid the height­ened risk aversion caused by the COVID-19 pandemic, the inter-agency Financial Stability Coordination Council (FSCC) said.

FSCC chairman and Bangko Sentral ng Pilipinas Governor Benjamin Diokno said in a statement the body would pur­sue initiatives to re-deploy the liquidity already in the system.

“This will require introduc­ing some investment outlets to mobilize the liquidity while robust practices for pricing and valuing financial risks can only help further,” he said.

The COVID-19 measures implemented by the BSP such as the cumulative 175-basis point interest rate cut to an all-time low of 2.25 percent, the lowering of the bank reserve requirement ratios, the P300- billion repurchase agreement with the Bureau of the Trea­sury, the purchase of govern­ment securities in the second­ary market, among others, have unleashed P1.3 trillion into the financial system.

Diokno said other initia­tives would require the strong collaboration among FSCC-member agencies, as well as with other partners in both government and the private sector.

Aside from the BSP, the FSCC is composed of the Department of Finance, the Insurance Commission, the Philippine Deposit Insurance Corp. and the Securities and Exchange Commission.

It is tasked to identify, moni­tor, manage and mitigate the buildup of systemic risk in the Philippine financial system.

The FSCC has repeatedly mentioned that dealing with the pandemic and recession and the transition to the new economy requires all stake­holders to work together.

If the aversion to financial risks is allowed to remain el­evated, this could only mute further economic activity.

The BSP chief pointed out the FSCC is providing a clear anchor by providing more details of the new economy, al­lowing stakeholders to prepare their future market position.

According to the FSCC, the work environment in the new economy can be expected to put a premium on space, rely more on information and communications technology resources and in the process tilt the work-life balance towards more at-home time.

It added major changes should be expected in the way products and services are generated and then delivered to end-users.

“This is not a small change. You have production-to-mar­ket changes coupled with how the consumer prefers to re­ceive these products. That will change our policy parameters, for example, on inflation and market liquidity, and it will change the way risks develop in this new network of modi­fied socio-economic arrange­ments,” Diokno said.

Entrepreneurs can better navigate their way toward the new economy, while innova­tive means of mobilizing sav­ings can be introduced.

For financial institutions, the risks ahead are also better scoped, giving them a stronger foundation to actively partici­pate in the recovery from the recession and transition to the new economy.

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