The Bangko Sentral ng Pilipinas (BSP) yesterday said it has approved the request of the national government for “fresh provisional advances” worth P540 billion.

    Benjamin Diokno, BSP Governor, said the short-term loan will be used for “deficit financing as a result of the coronavirus pandemic.”

    Diokno said the national government will settle the P540 billion “on or before December 29, 2020 at zero interest.”

    Considered as the lender of last resort, the BSP may make direct provisional advances with or without interest to the national government to finance expenditures authorized in its annual appropriation, pursuant to Section 89 of Republic Act No. 7653 or the New Central Bank Act.

    At the onset of the lockdown measures imposed last March to combat the new coronavirus disease 2019 COVID-19, the BSP lent P300 billion to the national government under a repurchase agreement “with a maximum repayment period of 6 months.”

    Diokno said the Bureau of Treasury has fully settled the amount on Tuesday, September 29, 2020.

    Nicholas Mapa, ING Bank Senior Economist, said market players are on the lookout for such arrangements “as it may eventually call into question central bank independence.”

    “BSP has justified such arrangements given the urgent need to help finance government outlays to offset the economic downturn, pledging to wind down such extraordinary measures when economic activity normalizes,” Mapa said.

    He added that the planned second tranche of cash advances will have “marginal impact on inflation and the currency.”