BSP ready to further deploy tools vs COVID-19

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) stands ready to recalibrate or deploy additional measures after delivering another surprise rate cut last week amid uncertainties brought about by the global health pandemic, its top official said.

During the virtual Stratbase ADR Institute Pilipinas Conference 2020, “The key role of the business sector in economic recovery,” BSP Governor Benjamin Diokno said the central bank is far from exhausting the instruments in its policy toolkit.

“As the end of the pandemic still remains uncertain, the BSP continues to monitor economic developments and data to gauge the evolving needs of the economy,” he said.

The BSP has taken measures to soften the impact of the COVID-19 pandemic, freeing up P1.9 trillion into the financial system to help the economy recover after stalling as the government imposed a strict lockdown starting March.

Diokno said the country’s gross domestic product (GDP) contracted by 10 percent from January to September, following 21 years of uninterrupted growth.

As restrictions are slowly lifted and economic sectors gradually reopen, Diokno said the BSP expects the Philippine economy to bounce back and grow from 6.5 to 7.5 percent in 2021 and 2022 after contracting by 4.4 to 6.6 percent this year.

“Indeed, we have been through difficult times. Yet, there are signs that the economy is on the road to recovery,” Diokno said.

“The swift and decisive measures undertaken by the BSP at the onset of the pandemic have provided crucial support to the economy and market confidence,” he said.

The central bank’s Monetary Board slashed interest rates by 200 basis points, including the surprise 25 basis points rate cut last Nov. 19, bringing the overnight reverse repurchase rate at an all-time low of two percent and resulting in a negative real interest rate as inflation averaged 2.5 percent in end-October.

The central bank also lowered the reserve requirement ratios for banks, provided a P540 billion provisional advance to the national government, entered into a P300-billion repurchase agreement with the Bureau of the Treasury that was settled last Sept. 29, opened a daily one-hour window to purchase government securities in the secondary market, and remitted dividends amounting to P20 billion to the national coffers.

Likewise, Diokno said the central bank also extended regulatory and operational relief measures to BSP supervised financial institutions (BSFIs) including the expansion of the set of eligible instruments as compliance with the central bank’s reserve requirement to include newly granted loans to micro, small and medium enterprises and critically impacted large enterprises that do not belong to a conglomerate structure.

The BSP, he added, also took a proactive stance in its prudential measures including the extension of financial relief to borrowers particularly for micro, small and medium enterprises (MSMEs), incentivized lending, promotion of continued access to financial services, support for continued financial services delivery, and support for sufficient level of domestic liquidity and economic activity.

He said the challenge for the BSP is how to craft an appropriate disengagement strategy.

“An early exit may take away much needed support to economic activity and growth. While waiting too long could foment systemic risks, especially amid a prolonged environment of low interest rates – as demonstrated by the 2008 global financial crisis,” Diokno said.