BSP eyes pause while assessing impact of previous actions

MANILA, Philippines –The Bangko Sentral ng Pilipinas (BSP) is assessing the impact of previous aggressive monetary actions to soften the impact of the COVID-19 pandemic, according to BSP Governor Benjamin Diokno.

In a television interview with ABS-CBN news channel ANC, Diokno said the BSP is giving the financial sector time to digest previous actions, including the series of interest rate cuts.

“We are just pausing to make sure that the financial sector is able to digest all these monetary easing that we have done and so we’re waiting for additional information from the market to use our additional bullets,” Diokno said.

The  Monetary Board has slashed interest rates by 175 basis points, including the surprise 50 basis points cut on June 25, bringing the overnight reverse repurchase rate to an all-time low of 2.25 percent.

It also lowered the reserve requirement ratio for big banks by 200 basis points to 12 percent on March 30 as part of its commitment to bring down the level to single digit by the middle of 2023.

Other COVID-19 measures include the P300 billion repurchase agreement with the Bureau of the Treasury (BTr), the purchase of government securities in the secondary market, the temporary suspension of the term deposit facility (TDF) auction and lowering of the volume of the overnight reverse repurchase facility, among others that has so far unleashed P1.3 trillion into the financial system.

Diokno said the central bank has a number of ammunition left in its arsenal to help jumpstart the economy due to containment measures such as the enhanced community quarantine put in place in the middle of March to slow the spread of the virus.

“We are ready, we still have a lot of bullets on our side and we can use it should the need arise,” he said.

For one, Diokno said the Monetary Board approved the cut in the

level of deposits banks are required to keep with the central bank by as much as 400 basis points this year, half of which took effect on March 30.

The next rate-setting meeting of the Monetary Board is scheduled on Aug. 20.

The BSP chief said monetary authorities would continue to monitor the state of the economy as economic managers expect the  gross domestic product (GDP) to contract between two and 3.4 percent this year.

Diokno also said that inflation is not a major concern as it is expected to remain benign and stay within the BSP’s two to four percent target range.

“If you look at inflation outlook it would be very benign for the next two and a half years. So that is not our primary concern at the moment. But we continue to monitor other things like capacity utilization, the price of oil in the global market, price of power, and other information,” he said.

British banking giant HSBC sees the BSP further easing the country’s monetary stance this year in anticipation of a prolonged U-shaped recovery from the economic slump due to the pandemic.

Fan Cheuk Wan, chief market strategist for Asia at HSBC Private Banking, said the BSP is expected to further reduce interest rates by another 25 basis points to an all time low of two percent as well as the reserve requirement ratio for big banks by 200 basis points to 10 percent within the year.

HSBC now expects the country’s gross domestic product contracting by 3.9 percent this year before rebounding next year with a growth of seven percent.