Moody’s: BSP has space for more monetary action

The Bangko Sentral ng Pilipinas (BSP) has more space for further monetary accommodation to soften the economic fallout from the coronavirus disease 2019 or COVID-19 pandemic, according to Moody’s Investors Service.

Christian de Guzman, senior vice president for sovereign risk group at Moody’s, told The STAR the Bangko Sentral ng Pilipinas (BSP) has enough room to address the large degree of uncertainty over the pandemic.

“We do not publish forecasts for monetary policy. Having said that, we note that the BSP has more space for further monetary accommodation when compared to other countries whose policy rates and/ or reserve requirements are much lower,” De Guzman said.

The Monetary Board has so far slashed interest rates by 125 basis points to boost market confidence and cushion the economic fallout from the contagion.

This includes the deeper 50-basis point rate cut in its first ever off-cycle meeting on April 16, bringing the overnight reverse repurchase rate to an all-time low of 2.75 percent.

The BSP has also lowered the reserve requirement ratio by 200 basis points on March 30, releasing P200 billion to the financial system to address the liquidity needs of banks to help restart the economy after the entire Luzon was placed under enhanced community quarantine to slow the spread of the outbreak.

Economic managers, through the Development Budget Coordination Committee (DBCC), expect the economy to shrink by two to 3.4 percent this year.

The DBCC also expects inflation to average between 1.75 and 3.75 percent this year, lower than the BSP target range of two to four percent and the peso averaging 50 to 54 to $1.

Moody’s sees a GDP contraction of two percent this year, ending almost two decades of positive growth before recovering with a 6.4 percent growth next year. It expects inflation to ease to 2.2 percent before picking up to 2.8 percent.

“Moreover, the stability of the exchange rate has contributed to a softening trend in inflation, which allows even more room for policy easing,” De Guzman said.

However, Diokno has time and again said it is prudent on the part of the Monetary Board to see how the aggressive policy measures it has adopted have been absorbed by the financial system as monetary policy works with a lag.