BSP measures continue to stabilize liquidity conditions


    The BSP implemented various measures during the enhanced community quarantine as part of the whole-of-government response to the pandemic. These measures have released up to P1.3 trillion into the financial system, equivalent to about 6.4 percent of the country’s GDP and brought domestic liquidity to expand by 16.6 percent amounting to P13.7 trillion in May.

    The Bangko Sentral ng Pilipinas (BSP) said latest data indicate that the BSP liquidity measures implemented since the onset of the COVID-19 pandemic continue to help stabilize domestic liquidity conditions.

    M3 expanded by 16.6 percent year-on-year to about ₱13.7 trillion in May. This is the fastest pace of domestic liquidity growth since February this year.

    The BSP’s measures, such as the four successive cuts in the monetary policy rate, the reduction in the reserve requirement ratios, the temporary suspension of term deposit facility (TDF auctions), the repurchase agreement with the NG, government securities (GS) purchases in the secondary market, and the advance remittance of dividends to the NG, have released up to ₱1.3 trillion into the financial system, equivalent to about 6.4 percent of the country’s GDP.

    The BSP implemented said measures during the enhanced community quarantine as part of the whole-of-government response to the pandemic.

    Benjamin Diokno, BSP Governor, said the continued stabilization of domestic liquidity conditions and the improvement in market sentiment “has allowed the BSP to gradually reconfigure its monetary operations.”

    “This will reinforce our prior liquidity-enhancing measures and facilitate their transmission to market interest rates, loan growth, and eventually to overall economic activity,” Diokno said.

    He added that bank lending to non-financial corporations and households continue to be a principal driver of liquidity expansion.

    “Bank lending has slowed down in April and May 2020 as the imposition of quarantine measures to contain the spread of the virus impeded economic activity and dampened market sentiment,” Diokno said.

    He added that as the BSP’s monetary and regulatory measures gain further traction, credit to the private sector is projected to pick up in the coming months with the gradual reopening of the economy.

    Diokno also said domestic borrowings by the National Government (NG) have also become one of the major drivers of domestic liquidity growth.

    “This reflects the impact of our measures to restore market confidence to place investible funds in domestic bond issues, such as government securities, and ensure the proper functioning of the financial market,” Diokno said.

    “As the economy transitions into new operating conditions, the BSP will continue to support the National Government’s broader efforts to mitigate the adverse impact of the health crisis. The BSP stands ready to deploy appropriate measures as needed to facilitate the recovery of the economy, in line with its mandate to preserve price and financial stability conducive to the balanced and sustainable growth of the economy,” Diokno said.

    Meanwhile, Diokno revealed that BSP continued to engage its international partners amid the pandemic in line with its thrust of proactively pursuing international cooperation.

    “The pandemic has provided us with an opportunity to widen our engagement and intensify our policy dialogues.  Sustained international engagement enables the BSP and its peers to continue learning from each other and pursuing mutually beneficial objectives,” Diokno said.

    In line with this thrust, the BSP is currently in the middle of discussions with Indonesian and Singaporean authorities for closer institutional cooperation.

    The BSP and Indonesia’s Financial Services Agency (Otoritas Jasa Keuangan) are having dialogues on the areas of supervisory framework, consumer protection, financial inclusion, FinTech, and capacity building.

    The BSP and the Monetary Authority of Singapore are also discussing ways to facilitate data connectivity with respect to the operation of financial institutions across borders.

    Moreover, the BSP continues to participate in the operationalization of the Chiang Mai Initiative Multilateralisation (CMIM), the regional financing arrangement that members of the Association of Southeast Asian Nations (ASEAN), China, Japan and Korea can draw upon in times of shocks.  The amended CMIM Agreement, which came into force on 23 June 2020, offers a stronger currency swap arrangement and financial safety net.

    Key features of the 2020 CMIM amendment include allowing greater flexibility for the financing of the facility linked with the International Monetary Fund (IMF) to ensure consistency with IMF-supported programs, strengthening coordination with IMF, and addressing legal ambiguities such as those that involve confidentiality of information.

    The BSP also continued its dialogues with international partners such as the ASEAN, Asian Development Bank, Bank for International Settlements and IMF. Done primarily through virtual meetings, the dialogues enabled exchange of ideas on the COVID-19 pandemic.

    The discussions have zeroed in on economic developments, policy responses, availability of financing assistance and other means of support, and the way forward in the new economy.