Even as price increases were faster in July, the Monetary Board yesterday said the key rates of the Bangko Sentral ng Pilipinas “remain appropriate.”
But in a move to provide additional support to the economy, the Monetary Board decided to increase big and thrift banks’ limit on real estate loans to 25 percent from 20 percent.
The BSP’s overnight reverse repurchase (RRP) facility was maintained at 2.25 percent. The interest rates on the overnight deposit and lending facilities were likewise kept at 1.75 percent and 2.75 percent.
Benjamin Diokno, BSP Governor, said the Monetary Board’s decision was based on its assessment that the “inflation environment remains benign.”
“The Monetary Board is of the view that monetary policy settings remain appropriate for the time being. A prudent pause will enable the cumulative 175-basis-point reduction in the policy rate as well as other monetary and regulatory relief measures by the BSP to fully work their way through the economy, even as the government continues to implement interventions to bolster economic activity and protect human lives and livelihoods,” Diokno said.
Diokno said while latest baseline forecasts have risen slightly due to the higher-than-expected inflation in July and recent increases in global crude oil prices, “the future inflation path remains firmly within the government’s 2-4 percent target.”
“The balance of risks to the inflation outlook also leans toward the downside from 2020 until 2022 owing largely to potential disruptions to domestic and global economic activity amid the ongoing pandemic,” he added.
The Monetary Board also noted that inflation expectations, although slightly on the upside, “remain broadly consistent with the inflation target.”
Average inflation for full-year 2020 now stands at 2.6 percent from 2.3 percent.
For 2021 and 2022, the Monetary Board also increased its forecast to 3 percent from 2.6 percent and 3.1 percent from 3 percent, respectively,
Diokno said outlook for global economic growth “remained subdued and uncertain amid a resurgence in COVID-19 cases in many jurisdictions.”
“The Monetary Board also noted the sharp contraction in domestic output in the first half of 2020, reflecting the impact of the enforcement of necessary measures to contain the spread of the virus in the country. At the same time, we observed early signs of recovery in domestic economic activity with the gradual easing of lockdown restrictions, supported by ample liquidity in the financial system,” Diokno said.
Meanwhile, Diokno said the increase in big and thrift banks’ limit on real estate loans translates to “additional liquidity for real estate lending amounting to around P1.2 trillion based on end March 2020 numbers.”
“The measure aims to support growth in productive sectors of the economy amid the COVID-19 situation, including the real estate activities. It also encourages bank lending to households for the acquisition or construction of a residential real estate property,” Diokno said.
Diokno said big banks and their subsidiary thrift banks are also “required to comply with the real estate stress test (REST) limits, after assuming a 25 percent write-off of real estate exposures, on both solo- and consolidated basis.”
At present, the BSP mandates a 10 percent capital adequacy ratio (CAR) and 6 percent common equity tier 1 capital ratio for big banks and their subsidiary thrift banks.
Also, thrift banks that are not subsidiaries of big banks should maintain 10 percent CAR and 6 percent Tier 1 ratio.
Diokno said under the new guidelines, the methodology for computing a bank’s REST limits was revised to exclude residential real estate loans to individuals for own occupancy and foreclosed real estate property.
“The REST limits are implemented as soft limits such that a bank may maintain exposures to real estate for as long as it is able to demonstrate ability to manage risks,” Diokno said.
Nicholas Mapa, ING Bank senior economist, however said that despite all of these measures, “banks may be hard pressed to push out loans if demand remains tepid due to the current fractured state of the labor market and overall economic outlook.”
“Anemic bank lending may be more a function of demand rather than supply of liquidity,” Mapa said.
Data from the BSP showed that outstanding loans for real estate activities rose to P1.719 trillion in June.
Real estate loans accounted for a fifth of total loans for economic activities.
The Monetary Board has reduced the key rates of the BSP by a total of 175 since the start of the various lockdown measures in March to combat COVID-19.
It 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 basis points; 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 moves are all meant to help the economy combat the negative effects of COVID-19.