Moody’s: BSP to deliver another rate cut
THE Bangko Sentral ng Pilipinas (BSP) is expected to again cut interest rates in April to boost the local economy amid the coronavirus 2019 (Covid-19) pandemic. In its weekly highlights, Moody’s Analytics said the BSP is expected to shave off another 50 basis points from the country’s interest rates this month. Reports showed the Monetary Board has already cut interest rates by 75 basis points this year. The overnight reverse repurchase rate is now at 3.25 percent. “The central bank followed with guidance that the policy rate is likely to be reduced by 50 basis points in April,” Moody’s said. “[Last week] the government announced further support via a $527-million fiscal package.” In the Philippines, Moody’s said the enhanced community quarantine (ECQ), which covered the whole of Luzon island, will likely have a heavier toll on the economy. It stressed that Luzon is home to 60 million people or 57 percent of the country’s population. It also accounts for about 70 percent of GDP. Moody’s said many economies in the Asia-pacific region have increased containment and set aside large stimulus packages to pump-prime the economy. Singapore, for one, has allocated S$60 billion or 12 percent of its GDP. This, Moody’s said, is unprecedented and has exceeded the stimulus package Singapore had during the Global Financial Crisis 2008-2009. Despite these containment measures and stimulus, Moody’s said trade-exposed economies like Singapore remain threatened by weak global demand. “Recession risks remain for the trade-exposed economy, with weak global demand and mass supply chain disruptions likely to continue for the second half of the year,” Moody’s said. Last week, Finance Secretary Carlos G. Dominguez III said the economy could post zero growth to as low as a contraction of 1 percent this year due to Covid-19.
Previous contractions
THE Philippine economy is no stranger to these low levels of GDP growth rates. The last time GDP contracted was in 1998 and 1991 when full-year GDP both contracted 0.6 percent. Prior to those years, the last time GDP contracted was in 1984 and 1985 at 7.3 percent. In 1998 there was a severe El Niño and the tailend of the Asian Financial Crisis. In 1991 the economy suffered from the residual effects of the July 1990 earthquake and Mount Pinatubo’s eruption in June 1991. The years 1984 and 1985 were the last two years of the Marcos administration. A few months after the end of 1985, in February 1986, the country had the world’s first bloodless revolution and saw a change in administration. Initial estimates of the National Economic and Development Authority (Neda) said that given the simultaneous adverse effects on the supply and the demand side of the economy, a cumulative loss of P428.7 billion to P1.36 trillion in gross value added using current prices may be expected. This is equivalent
to 2.1 percent to 6.6 percent of nominal GDP in 2020. The bulk of the impact is due to the Luzon-wide enhanced community quarantine—p298 billion to P1.09 trillion, or 1.5 percent to 5.3 percent of Gdp—and affects 61,000 to a million Filipinos. This is followed by losses in the transport and tourism sector worth P77.5 billion—p156.9 billion or 0.4 percent to 0.8 percent of GDP, and affecting 33,800 to 56,600 Filipinos in the sector. The list includes consumption losses worth P45.1 billion—p93.6 billion or 0.20.5 percent of GDP, and affects 16,50062,500 Filipinos in the sector. Exports and remittances will also be affected with losses reaching P4.9 billion to P9.8 billion or 0.02-0.05 percent of GDP; and P3.9 billion-8.5 billion or 0.02-0.04 percent of GDP, respectively.