IN an off-cycle move, the Monetary Board yesterday decided to reduce the key rates of the Bangko Sentral ng Pilipinas (BSP) by another 50 basis points (bps) to help insulate the economy from the effects of the coronavirus disease 2019 (COVID-19).
In a message, BSP Governor Benjamin Diokno said the interest rate on the BSP’s overnight reverse repurchase (RRP) facility now stands at 2.75 percent.
The interest rates on the overnight lending and deposit facilities were also reduced to 3.25 percent and 2.25 percent, respectively.
The move is effective today, April 17.
Central banks lower interest rates to encourage borrowing and investing, thereby possibly stimulating economic growth. But this may hasten inflation.
Rates are raised, meanwhile, when there is too much growth. Higher borrowing rates slow inflation and return growth to more sustainable levels.
The tweaks came less than a month after the Monetary Board also reduced the key rates by 50 bps. Since Luzon was placed under enhanced community quarantine last month, the key rates have been reduced by 125 bps.
The Monetary Board, the policymaking body of the BSP, has also reduced the reserve requirement ratios of universal and commercial banks as well as non-bank financial institutions with quasi-banking functions by 200 bps; suspended the term deposit facility auctions for certain tenors; reduced the term spread on the peso rediscounting loans relative to the overnight lending rate to zero; and relaxed various regulations pertaining to compliance reporting, calculation of penalties on required reserves, and single borrower limits.
These are all meant to help the economy combat the negative effects of COVID-19.
Nicholas Antonio Mapa, ING Bank senior economist, said the move was expected by market players.
“Market reaction to the move was muted given that Diokno had heavily hinted at implementing a ‘deeper rate cut’ at an off-cycle meeting,” Mapa said.
“We expect (the Monetary Board) to continue to ease monetary policy, reducing RR (banks’ reserve requirements) by another 200 basis points before the end of April and cutting policy rates by another 25 basis points by May,” Mapa added.
He said investors will continue to monitor the size and scope of the fiscal COVID-19 recovery plan “now that the lockdown has been extended to the end of the month with government officials flagging a worst case scenario technical recession by the third quarter of the year.”
