with reports from Reuters
THE Philippines’ central bank governor on Sunday said another 200-basis-point cut in the bank’s reserve requirement ratio is “forthcoming” and signalled more cuts in its policy interest rate to cushion the economic blow of the novel coronavirus.
The bank has slashed its interest rate by a total of 75 basis points (bps) so far this year to 3.25 percent — more than the 50 bps reduction which it had earlier committed. It also cut the ratio of funds it requires banks to keep in reserve by 200 bps last month to help boost liquidity in the economy.
“It is now clear that reverting to where we were in 2018 — policy rate at 3.0 percent — is no longer an appropriate policy goal,” Benjamin Diokno, Bangko Sentral ng Pilipinas (BSP) governor, told reporters. “A deeper cut is warranted in response to the expected sharp economic slowdown.”
The Philippines, usually among Asia’s fastest-growing economies, is set to post zero growth this year under the government’s best-case scenario, versus last year’s 5.9 percent.
“The Philippines is now facing a once-in-a-lifetime crisis,” Diokno said. “These new realities call for bolder but appropriate moves on the part of the BSP.”
President Rodrigo Duterte on Tuesday extended measures covering over half of the population aimed at limiting social contact, to slow the spread of a virus that has infected 4,428 people in the country and caused the deaths of 247.
Policies restricting movement and gatherings have been in place in and around the capital Manila for almost a month, dampening domestic consumption, a key driver of economic growth.
“The monetary authority’s job, in coordination with fiscal authorities, is to manage a ‘soft’ landing and ensure economic takeoff begins quickly once the pandemic fades,” Diokno said.
Guided by its mandate as the country’s central monetary authority, and in accordance with the provisions of the New Central Bank Act, Diokno said the BSP deems it necessary to take extraordinary measures to complement the national government’s broad-based health and fiscal programs in mitigating the impact of COVID-19.
“By ensuring sufficient liquidity in the financial system, the BSP aims to assist our financial intermediaries in responding to the needs of Filipino households and businesses amid these challenging times,” Diokno said.
These measures include purchases of Government Securities in the Secondary Market; reduction in the Overnight Reverse Repurchase Volume Offering; and repurchase Agreement with the National Government.
These extraordinary measures complement earlier actions taken by the BSP to shore up market confidence and cushion domestic economic activity.
Aside from the cumulative 75-basis-point reduction in the monetary policy rate since February 2020, 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.
“The BSP reassures the Filipino people of its commitment and readiness to deploy its full range of instruments to provide liquidity and ensure the efficient functioning of the domestic financial market,” Diokno said.
“We will continue to work closely with market participants and other relevant government agencies in monitoring the situation and carrying out appropriate policy responses in a timely manner, in support of the National Government’s broader efforts to mitigate the adverse impact of the health crisis on the economy at large,” he added.
