Low money cost builds confidence

So it’s utmost important that we bring back the confidence of our public in spending again

The recent Bangko Sentral ng Pilipinas (BSP) decision to slash policy rates to its lowest ever will be a major tool to drive consumer confidence, according to economic managers.

Department of Finance Secretary Carlos Dominguez III said the decision to lop 50 basis points on interest rates is expected to bring back confidence "to our bankers, to our consumers because our economy is about 70 to 75 percent consumption driven."

"So it's utmost important that we bring back the confidence of our public in spending again," he added during a virtual interview.

During its latest rate-setting meeting, the BSP have decided to further reduce the policy rate, bringing it to just 2.25 percent.

Lower interest rates will help encourage spending as consumers will have more money to spend, creating a ripple effect of increased spending throughout the economy.

ING senior economist Nicholas Mapa said that the latest policy cut will help reduce appreciation pressures for the peso in the near-term, as the local unit have enjoyed strength in the previous weeks.

Likewise, Mapa said that the local bond market could benefit from this move by the central bank as such could temper concerns about additional bond supply.

Phl is ready

Still, the DoF chief said the country was "quite well prepared when the crisis hit" given the government's huge tax base as a result of the launched tax reform program along with the massive infrastructure program.

"We see that our economy is going to be hit hard. Probably we will shrink by maybe about 3.5 percent this year but we're ready for a big bounce back next year," Dominguez said.

BSP Governor Benjamin Diokno earlier said that the Philippines will be able to withstand the health crisis as it came from a "position of strength," reversing the eyed economic contraction this year to 7.8 percent expansion in 2021.

Quicker response

Diokno said the central bank as an autonomous body allows it to implement measures to respond to the effects of the health emergency on the economy faster.

“We continue to work closely with the fiscal authorities. We can act faster because the central bank is autonomous. We don’t need Congressional action or something like that. So, we thought that given the pandemic, we have to infuse liquidity into the system,” Diokno said during the "Emerging Market Debt: A Roadmap Beyond COVID-19" webcast hosted by