BSP OKs lending government P540-B for pandemic response
Residents commute to work on bicycles in Manila on September 28, 2020. More commuters are taking to bicycles as a means to get to work amid the COVID-19 coronavirus pandemic in the Philippine capital, as few public transport including buses and jeepneys are allowed to ferry passengers as part of health protocols imposed by authorities.
AFP/AC Dimatatac
BSP OKs lending government P540-B for pandemic response
Prinz Magtulis (Philstar.com) - October 1, 2020 - 4:44pm

MANILA, Philippines — A day after revealing the government had requested the central bank to lend money, the Bangko Sentral ng Pilipinas (BSP) approved the disbursement of fresh P540 billion to fund a costly pandemic response.

The Monetary Board, the central bank’s policymaking body, approved the Duterte administration’s request on its meeting on Thursday, BSP Governor Benjamin Diokno told reporters in a Viber message.

Cash advances would carry zero interest and be payable until December 29. They followed an initial P300 billion funneled to government through BSP’s investments on Treasury bonds last March. The full amount of bonds was already settled last Tuesday.

Funds from BSP would pile up in the government’s debt stock, which has seen an unabated increase from foreign loans and grants as well as borrowings from local investors through Treasury bonds. 

But more than rising liabilities, analysts have raised red flags over BSP renewed lending to government, which they said has put the central bank’s independence—and its goal of ensuring inflation remains stable—at risk of getting eroded. For one, cash from government borrowings can feed to the broader financial system and push up prices.

But BSP Deputy Governor Francisco Dakila Jr. doused concerns the central bank may be setting a dangerous precedent of supplying government cash. “In normal times, debt monetization will be more worrisome because of potential inflationary effects,” he said.

“However, just like in other countries, the ongoing pandemic has required, what we can call a whole of government effort in order to fight the impact of the pandemic on the economy,” BSP Dakila said in a briefing.

BSP lending to government, Dakila said, has also become “critical and necessary” to replace the state’s depleting revenue streams due to weak economic activity during the health crisis.

Even before the health crisis’ economic repercussions have materialized, the central bank has deployed numerous monetary support to the economy, including lowering bank interest rates to historic lows and encourage borrowing. Lenders were also given more funds to lend out through a 200 basis-point cut on mandated reserves. 

On Thursday, BSP decided a “continued pause” on easing monetary policy was warranted for now as the impact of previous rate and reserve cuts have not fully materialized yet on the broader economy. 

The central bank is left with only two more meetings to set policy this year on November 19 and December 17.

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