No exit yet for BSP relief measures

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said it might be some time before they take back COVID-19 relief measures such as liquidity support and regulatory reprieve granted to banks and only if a remedy is found for the coronavirus.

“The BSP will continue with our evidence-based, data-driven approach to policy making, including deciding when to scale back pandemic support measures,” said Diokno during his virtual “GBED Talks” Thursday.

Diokno said the BSP is responsible for ensuring that there is sufficient liquidity in the financial system and to prevent the “tightening of financial conditions and financial disintermediation while keeping a close watch on inflation developments.”

“We fully recognize that until such time when economic activities can resume full operations (and that effective treatment against COVID-19 has been found) many of our fiscal and monetary stimulus measures may still be needed to support productivity” and ensure economic growth, according to the BSP chief. As such, he reiterated that “timing is critical to the exit strategy” and they will know when to undo relief measures based on relevant data on inflation, as well as bank capital and liquidity.

In timing this exit strategy, a BSP paper provided a four-phase macroeconomic policy response, and currently the country is on Phase 2 which is “managing through the recession.”

Since economic activities are still limited, the BSP continue to have reasons to ensure liquidity support and regulatory relief measures but "subject to regular review" while there is also room for additional monetary and fiscal support.

“Under Phase 2, partial operations of some economic sectors are allowed while strictly observing health protocols. Fiscal and monetary stimulus packages as well as regulatory and operational forbearance measures are continuously being undertaken,” said Diokno. Phase 3 is when there is an effective remedy to reduce COVID-19 infections and where all sectors in the economy can be allowed to fully operate, he explained. “Fiscal and monetary stimulus measures may still be needed to support growth (but) nonetheless, unwinding of some of the temporary measures takes place.”

For now, one of the relief measures granted by BSP to the banks is allowing the lending to the micro, small and medium enterprises (MSMEs) as well as to qualified large enterprises as alternative compliance to the reserve requirement ratio (RRR). They did this because Diokno believed that lending to the vulnerable sectors such as the MSMEs, will speed up economic recovery.

Diokno has noted a positive response on taking advantage of lending to MSMEs as alternative compliance, mostly rural banks. He said the latest data show that there are 88 banks that have used this relief measure, releasing about ₱44.42 billion loans to MSMEs, up from a previous number of ₱9.9 billion by 55 banks.