BSP claims ‘munitions’ ready
We’re just pausing to make sure that the financial sector is able to digest all these monetary easing that we’ve done so were waiting for additional information from the market to use our additional bullets, but we’re ready
With the economy still reeling from the effects of the coronavirus disease (COVID-19), the Bangko Sentral ng Pilipinas (BSP) on Monday assured that the Philippines still has “bullets” if needed to support the economy in its fight against the pandemic.
In a television interview,
BSP Governor Benjamin Diokno said he has reduced the key interest rates by a cumulative 175 basis points, bringing the
benchmark to its “lowest ever” at 2.25 percent.
The BSP governor also stressed that he was given the authority to cut RRR further to 10 percent as he also cut the reserve requirement ratio for banks by 200 basis points to 12 percent.
The Monetary Board decided that a further reduction in the policy rate amid a benign inflation environment would help mitigate the downside risk to growth and boost market confidence.
“We’re just pausing to make sure that the financial sector is able to digest all these monetary easing that we’ve done so were waiting for additional information from the market to use our additional bullets, but we’re ready,” Diokno said.
“We still have a lot of bullets on our side and we can use it should the need arise,” he added.
Diokno noted that the debt to gross domestic product (GDP) before COVID-19 was below 40 percent, which means the Philippines “can borrow a lot to tide us over during this pandemic.”
He also stressed that the Philippine peso is one of the strongest in the region and the country has a “hefty” gross international reserves that is expected to reach $95 billion by the end of the year.
President Rodrigo Duterte’s top officials on Wednesday said the country was poised for an “economic rebound” with the health measures and economic recovery protocols in place.
And while the economy could shrink by as much as 3.4 percent this year due to the pandemic, Diokno said it could recover eight to nine percent in the coming years.
Last month, the BSP had cut its policy rate by another 50 basis points and Diokno stressed that while inflation remains benign, “global economic recovery would likely be protracted and uneven,” thus the need to continue measures to boost economic activity.
“Given these considerations, the Monetary Board decided that a further reduction in the policy rate amid a benign inflation environment would help mitigate the downside risk to growth and boost market confidence,” Diokno said.
We still have a lot of bullets on our side and we can use it should the need arise.
The BSP first cut rates by 25 bps in February. This was followed by a 50 bps cut in March, and another 50 bps cut in April in the middle of the enhanced community quarantine imposed to curb the spread of COVID-19 over Luzon and other areas.
Economists polled by Bloomberg earlier forecast the Bangko Sentral would keep rates steady.
“They’ve cut rates quite substantially so far and they have to wait to see the monetary policy transmission that has happened because of the rate cuts,” Standard Chartered economist Chidu Narayanan earlier said.
The Philippine economy shrank in the January-to-March period, a first since 1998.
The April to June period will likely be worse than the first quarter as the full toll of the coronavirus lockdown is reflected, an economist has said.