THE Bangko Sentral ng Pilipinas (BSP) is ready “to employ its policy tools as necessary” to address the impact of the coronavirus disease (COVID-19) on the country’s economy, according to BSP Governor Benjamin Diokno.

“The BSP is ready to use its entire arsenal of instruments in a timely manner to address the macroeconomic impact of COVID-19. In line with this, the BSP will continue to monitor market conditions for any emerging risks to our outlook for both inflation and economic activity, in order to ensure our readiness to deploy policy responses and measures, as warranted,” Diokno said.

Diokno also said the BSP expects the Philippines’ growth to slow down significantly in 2020.

The government yesterday announced that the country’s gross domestic product contracted by 0.2 percent in the first quarter.

“The further extension of the ECQ (enhanced community quarantine) measures until May 15 is expected to negatively impact on domestic economic activity. The BSP expects a U-shaped growth trajectory with economic activity rebounding vigorously once the ECQ is lifted,” Diokno said.

He added that a contraction ranging from 1.0 percent to 0.0 percent is forecasted for 2020 but is expected to bounce back to 7.8 percent growth in 2021.

Diokno stressed that the BSP has taken “swift, pre-emptive, and substantial steps to ensure adequate liquidity in the financial system and the continued delivery of financial services.”

The BSP has reduced by a total of 125 basis points the policy rate. Diokno said this is “appropriate to cushion the country’s growth momentum and boost market confidence amid stronger headwinds.”

“The cuts in reserve requirement ratios — 200 basis points last April — as well as the approval of alternative modes of compliance, are also seen to help encourage banks to lend and channel credit especially to micro, small and medium enterprises,” Diokno added.

“We expect these monetary policy measures to have a cascading impact on market interest rates, which would eventually translate to lower borrowing costs for the government as well as for firms and people,” he also said.

Diokno said the BSP has likewise complemented these monetary policy adjustments with other liquidity-enhancing measures, including the temporary suspension of term deposit facility auctions, the reduction in reverse repurchase volume, and purchases of government securities in the secondary market.

“The BSP will remain vigilant as it considers a range of measures to combat the effects of the pandemic. We will continue to work with market participants and relevant government authorities to ensure that our policy responses remain timely and appropriate during these challenging times,” Diokno said.

AS expected, price increases of major commodities and services slowed down in April as key cities in the country remain under enhanced community quarantine resulting in weaker economic activities.

The Philippine Statistics Authority (PSA) yesterday said the headline inflation at the country level settled at 2.2 percent, slower than the 2.5 percent annual increase in March.

In April 2019, inflation was higher at 3.0 percent.

PSA said the downtrend in the headline inflation was the further decrease in the annual rate of transport index at 6.1 percent, the first time the index posted a deflation since 2015.

In addition, slower annual mark-ups were seen in the indices of alcoholic beverages and tobacco; clothing and footwear; housing, water, electricity, gas and other fuels; health; communication; and restaurant and miscellaneous goods and services.

The index of the heavily-weighted food and non-alcoholic beverages posted a higher annual increment of 3.4 percent.

Core inflation, meanwhile, continued to move at a slower rate at 2.8 percent, from 3.0 percent in March.

PSA further reported that inflation in the National Capital Region (NCR) eased further to 1.2 percent in April, from 1.7 percent in the previous month. Inflation in areas outside NCR also decelerated further to 2.5 percent from 2.7 percent.

Nine regions exhibited lower inflation during the month, with Region X (Northern Mindanao) maintaining the lowest inflation at 1.4 percent. Meanwhile, the highest inflation was still observed in Region XII (Soccsksargen) with an annual increment of 3.6 percent.

Year-to-date inflation for this year now stands at 2.6 percent, at the low end of the Bangko Sentral ng Pilipinas’ (BSP) full-year target range of between 2 and 4 percent.

Benjamin Diokno, BSP governor, said the latest inflation number is “consistent with the BSP’s prevailing assessment that inflation is expected to be benign over the policy horizon due to the adverse impact of the coronavirus pandemic on the domestic and global economy.”

“The latest baseline forecasts indicate that inflation could settle at 2.0 percent for 2020 and 2.5 percent for 2021,” Diokno said.

“In addition to the monetary policy actions that have been announced, the BSP stands ready to deploy any available measures in its toolkit as we continue to assess the impact of coronavirus pandemic on the domestic economy,” Diokno added.

The Monetary Board has reduced the key rates of the BSP thrice this year; the latest was an off-cycle move last month. The key rates now stand at a record low of 2.75 percent.

Diokno said the domestic economy will likely “follow a U-shaped recovery path.”

“Growth is expected to bounce back to its potential output growth in 2021 supported by the measures under the government’s recovery plan. The BSP reiterated its support for urgent and carefully coordinated measures with other government authorities to ease the spillover effects of the pandemic on people and firms, with a view towards preventing any long lasting economic and social damage,” Diokno added.

But Nicholas Mapa, ING Bank senior economist, said the BSP is not expected to “react aggressively to the slowing inflation.”

“Despite the slower inflation print, we do not expect the central bank to resort to additional aggressive policy rate cuts in the near term. BSP has offloaded a hefty 125 bps worth of rate cuts for 2020 and Diokno did hint at pausing momentarily to gauge the impact of previous rate cuts before acting further,” Mapa said.

He said they expect only a 25 basis point policy cut if ever BSP opts to ease further as the policy rate edges closer to BSP’s own inflation forecast of 2.2 percent for the year.

“Price pressures appear to be on the downtrend with demand side pressure and the oil factor weighing on overall headline inflation. We expect inflation to be subdued for a month after the end of the lockdown but we also foresee a steady acceleration in price pressures in the second half of the year as supply side pressures outweigh the demand side pull,” he said.

“Accelerating inflation in the third quarter, the period of least favorable base effect in 2020, is another reason for BSP to manage further policy rate cuts and reduction to reserves and we expect only marginal easing from here with fiscal stimulus kicking in to support the economy,” he added.

INFLATION for the month of April may go below 2 percent, the low point of the government’s full-year inflation target range of between 2 and 4 percent, according to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno.

“The BSP Department of Economic Research projects April 2020 inflation to fall within the 1.9 to 2.7 percent range,” Diokno said.

Inflation in March was at 2.5 percent. Official figures will be released next week.

Diokno said the collapse in oil prices is expected to moderate inflationary pressure coming from higher prices of rice and other food items along with upward adjustment in electricity rates in Meralco-serviced areas.

“The progressive fall in inflation will continue. Looking ahead, BSP will remain watchful of economic and financial developments here and abroad to ensure that monetary policy settings remain consistent with price stability conducive to a balanced and sustainable economic growth,” Diokno said.

In an off-cycle move, the Monetary Board last month decided to reduce the key rates of the BSP by another 50 basis points (bps) to help insulate the economy from the effects of the coronavirus disease 2019 (COVID-19).

Central banks lower interest rates to encourage borrowing and investing, thereby possibly stimulating economic growth. But this may hasten inflation.

Rates are raised, meanwhile, when there is too much growth. Higher borrowing rates slow inflation and return growth to more sustainable levels.

The tweaks came less than a month after the Monetary Board also reduced the key rates by 50 bps. Since Luzon was placed under enhanced community quarantine last month, the key rates have been reduced by 125 bps.

The Monetary Board, the policymaking body of the BSP, has also reduced the reserve requirement ratios of universal and commercial banks as well as non-bank financial institutions with quasi-banking functions by 200 bps; suspended the term deposit facility auctions for certain tenors; reduced the term spread on the peso rediscounting loans relative to the overnight lending rate to zero; and relaxed various regulations pertaining to compliance reporting, calculation of penalties on required reserves, and single borrower limits.

The moves are all meant to help the economy combat the negative effects of COVID-19.

THE economy might not escape a recession this year but will bounce back to more than 7 percent growth next year if the coronavirus disease (COVID-19) pandemic is contained in the second half of 2020.

Benjamin Diokno, Bangko Sentral ng Pilipinas governor, said the Philippines will likely follow a U-shaped economic recovery in 2021.

“The domestic economy could slow down in the first quarter of 2020 and is projected to contract in Q2 and Q3 before gradually recovering in Q4 2020,” Diokno said.

On an annual basis, Diokno said the country’s gross domestic product (GDP) is expected to “shrink by 0.2 percent in 2020 before it bounces back to about 7.7 percent as the impact of the government policy support measures gain traction.”

But Diokno stressed that the strong recovery is based on the assumption that the pandemic is contained in the second half of 2020.

He maintained that the Philippine economy might not escape a recession this year.

“But unlike most emerging economies (the Philippines) is starting from a position of strength, and thus, will not risk a debt default as a result of the COVID-19 pandemic,” Diokno said.

“The Philippines is one of the few developing countries that can borrow from multilateral institutions at largely concessional rates,” he added.

He explained that the country’s debt-to-GDP ratio was 40.5 in 2019. With the fiscal stimulus owing to the pandemic, and with the deficit-to-GDP ratio rising from 3.2 percent to 5.3 percent, the debt-to-GDP ratio might hit 47.0 percent, “modest by international standards,” noted Diokno.

He furthered that the Department of Finance has already raised some $6.9 billion of COVID-19 related loans from multilateral and bilateral sources as of April 24, 2020.

Diokno cited that the Philippines was in a sound fiscal and monetary state when the pandemic hit the country.

He said the “budget deficit was modest, the revenue base has been expanded with a series of new tax laws and improved revenue administration and the quality of expenditures has improved with focus on infrastructure spending and investment in human capital.”

He also stressed the country’s unemployment rate was “at its lowest ever” and poverty incidence goals were “surpassed midway through the Duterte administration’s term.”

“The monetary and financial condition of the country was sound and stable. The BSP has undertaken a series of reforms that made the banking industry sound, sufficiently capitalized, and with a lot of buffers,” Diokno said.

“Interest rates have also been cut by 200 basis points, while reserve requirement ratio has been reduced by 600 basis points, since a year ago,” he added.

He also noted the peso remains steady and “is the second strongest currency (next to Japan) among 14 monitored Asian foreign currencies after the COVID-19 pandemic.”

“The strength of the peso might be attributed to the Philippines’ hefty Gross international Reserves (GIR) and its strong economic fundamentals. The GIR is expected to hit more than $90 billion by end-2020,” Diokno said.

THE Monetary Board, the policymaking body of the Bangko Sentral ng Pilipinas (BSP), approved a package of measures to further reduce the financial burden on loans to micro-, small- and medium-scale enterprises (MSMEs).

In a statement, the Monetary Board said loans granted to MSMEs “shall be counted as part of banks’ compliance with reserve requirements.”

The Monetary Board observed that the coronavirus disease (COVID-19) health crisis has severely disrupted economic activity across the country.

“The outbreak continues to worsen overseas, thus, sharply reducing prospects for global economic growth for the rest of the year. The Monetary Board also assessed that it would take time before the situation stabilizes,” it said.

The Monetary Board believes that a further reduction in the policy interest rate as well as increased support for lending to MSMEs would “ensure adequate liquidity in the financial system and help reduce borrowing costs.”

Detailed guidelines on this and other related measures will be released this week.

The Monetary Board said these measures should mitigate the adverse impact of the outbreak on the economy by reinforcing the health and fiscal measures already being rolled out by the national government.

“The monetary initiatives will also quicken economic recovery as the pandemic fades,” it said.

In an off-cycle move, the Monetary Board on Thursday decided to reduce the key rates of the BSP by another 50 basis points (bps) to help insulate the economy from the effects of the COVID-19.

Central banks lower interest rates to encourage borrowing and investing, thereby possibly stimulating economic growth. But this may hasten inflation.

Rates are raised, meanwhile, when there is too much growth. Higher borrowing rates slow inflation and return growth to more sustainable levels.

The Monetary Board has also reduced the reserve requirement ratios of universal and commercial banks as well as non-bank financial institutions with quasi-banking functions by 200 bps; suspended the term deposit facility auctions for certain tenors; reduced the term spread on the peso rediscounting loans relative to the overnight lending rate to zero; and relaxed various regulations pertaining to compliance reporting, calculation of penalties on required reserves, and single borrower limits.

These are all meant to help the economy combat the negative effects of COVID-19.

Nicholas Antonio Mapa, ING Bank senior economist, said BSP’s move to allow banks to allocate lending to SMEs to satisfy their reserve requirement “could effectively releases P360 billion for fresh lending and then some as any further loans to this sector could eat into the P1.2 trillion set aside in the BSP’s virtual vaults.”

“Details on the new directive are forthcoming but (BSP Governor Benjamin) Diokno is getting quite creative in churning out new ways to help provide stimulus. Although a different model used by other countries such as the US and Indonesia that have specific funds setup primarily for SMEs, but it follows the current trend of BSP flexing while investors look to the fiscal side of the fence to match,” Mapa said.

He added the move “looks like a de factor RR reduction” as it frees up more money for banks to lend out to the greater public who will be needing cash to fight off the fallout from the COVID-19.

“But as what we’ve seen from past RR reductions, credit conditions and the general state of the economy matter in the timing of such moves and throwing money at the problem is not as effective unless channeled effectively,” Mapa said.

IN an off-cycle move, the Monetary Board yesterday decided to reduce the key rates of the Bangko Sentral ng Pilipinas (BSP) by another 50 basis points (bps) to help insulate the economy from the effects of the coronavirus disease 2019 (COVID-19).

In a message, BSP Governor Benjamin Diokno said the interest rate on the BSP’s overnight reverse repurchase (RRP) facility now stands at 2.75 percent.

The interest rates on the overnight lending and deposit facilities were also reduced to 3.25 percent and 2.25 percent, respectively.

The move is effective today, April 17.

Central banks lower interest rates to encourage borrowing and investing, thereby possibly stimulating economic growth. But this may hasten inflation.

Rates are raised, meanwhile, when there is too much growth. Higher borrowing rates slow inflation and return growth to more sustainable levels.

The tweaks came less than a month after the Monetary Board also reduced the key rates by 50 bps. Since Luzon was placed under enhanced community quarantine last month, the key rates have been reduced by 125 bps.

The Monetary Board, the policymaking body of the BSP, has also reduced the reserve requirement ratios of universal and commercial banks as well as non-bank financial institutions with quasi-banking functions by 200 bps; suspended the term deposit facility auctions for certain tenors; reduced the term spread on the peso rediscounting loans relative to the overnight lending rate to zero; and relaxed various regulations pertaining to compliance reporting, calculation of penalties on required reserves, and single borrower limits.

These are all meant to help the economy combat the negative effects of COVID-19.

Nicholas Antonio Mapa, ING Bank senior economist, said the move was expected by market players.

“Market reaction to the move was muted given that Diokno had heavily hinted at implementing a ‘deeper rate cut’ at an off-cycle meeting,” Mapa said.

“We expect (the Monetary Board) to continue to ease monetary policy, reducing RR (banks’ reserve requirements) by another 200 basis points before the end of April and cutting policy rates by another 25 basis points by May,” Mapa added.

He said investors will continue to monitor the size and scope of the fiscal COVID-19 recovery plan “now that the lockdown has been extended to the end of the month with government officials flagging a worst case scenario technical recession by the third quarter of the year.”

WITH Luzon — the country’s biggest and most populous island and home to major industries — placed under enhanced community quarantine, the International Monetary Fund (IMF) revised lower its full-year 2020 growth forecast for the Philippines to below 1 percent.

IMF yesterday said real GDP growth in 2020 is now projected to slow down to 0.6 percent.

This is a far cry from its previous full-year forecast of 6.3 percent.  This is also below the government’s full-year growth target of between 5.5 percent and 6.5 percent.

Yongzheng Yang, IMF resident representative, said the downward revision of the 2020 growth forecast is “mostly attributable to supply disruptions related to COVID-19 (new coronavirus disease 2019) and weaker demand in the Philippines’ major trading partners.”

“Tighter global financial conditions, weaker public confidence, and lower remittances are also expected to weigh on private consumption and investment,” Yang said.

But Yang stressed the negative impact of COVID-19 are expected to be partially offset by policy support.

“The virus outbreak is assumed to peak in the second quarter of 2020, leading to a gradual recovery in the second half of the year. Growth is projected to rebound from a low 2020 base to 7.6 percent in 2021,” Yang said.

Stemming the spread of COVID-19, Yang stressed, is of utmost importance.

He noted that policies at the moment should focus on “both protecting public health and putting people back to work, but getting the virus under control is, if anything, a prerequisite to saving livelihoods.”

“By acting forcefully now with strong actions to stop the spread of infections, complemented by strong economic policy actions to support people and businesses, the crisis can be ended sooner with less human and economic cost,” Yang said.

Yang said the IMF welcomes the local authorities’ fiscal and monetary policy responses to the impact of COVID-19.

“Owing to prudent macroeconomic management, the Philippines has built considerable policy buffers in recent years, and both the government and the BSP have been making good use of this policy space. The country has ample room for additional policy stimulus, if needed, given the relatively low level of public debt and well anchored inflation expectations,” Yang said.

Aside from the cumulative 75-basis-point reduction in the monetary policy rate since February 2020, Bangko Sentral ng Pilipinas (BSP) has also reduced the reserve requirement ratios of universal and commercial banks as well as non-bank financial institutions with quasi-banking functions by 200 basis points; suspended the term deposit facility auctions for certain tenors; reduced the term spread on the peso rediscounting loans relative to the overnight lending rate to zero; and, relaxed various regulations pertaining to compliance reporting, calculation of penalties on required reserves, and single borrower limits.

Yang also said the financial assistance extended to vulnerable households and workers as well as the health care sector is a positive move.

“Healthcare workers are on the frontline of fighting the pandemic, and the poor are the most vulnerable to the impact of crises like this pandemic. Given this, it is critical to respond promptly and forcefully to the needs of the poor and the vulnerable, as well as the healthcare sector.  We welcome the government’s P200 billion cash aid program to help 18 million low-income households,” Yang said.

Late March, the IMF declared a global economic recession, as the spread of the new coronavirus has stunted economic activity across the globe.

IMF managing director Kristalina Georgieva raised concern over the long-lasting impact of the sudden halt, among them vast joblessness.

“It is now clear that we have entered a recession — as bad as or worse than in 2009,” Georgieva said.

Despite this, Georgieva said they expect a sizeable rebound in 2021, if countries succeed in containing the virus and preventing liquidity problems.

“The length and depth of this recession depend on two things – containing the virus and having an effective, coordinated response to the crisis,” she added.

with reports from Reuters 

THE Philippines’ central bank governor on Sunday said another 200-basis-point cut in the bank’s reserve requirement ratio is “forthcoming” and signalled more cuts in its policy interest rate to cushion the economic blow of the novel coronavirus.

The bank has slashed its interest rate by a total of 75 basis points (bps) so far this year to 3.25 percent — more than the 50 bps reduction which it had earlier committed. It also cut the ratio of funds it requires banks to keep in reserve by 200 bps last month to help boost liquidity in the economy.

“It is now clear that reverting to where we were in 2018 — policy rate at 3.0 percent — is no longer an appropriate policy goal,” Benjamin Diokno, Bangko Sentral ng Pilipinas (BSP) governor, told reporters. “A deeper cut is warranted in response to the expected sharp economic slowdown.”

The Philippines, usually among Asia’s fastest-growing economies, is set to post zero growth this year under the government’s best-case scenario, versus last year’s 5.9 percent.

“The Philippines is now facing a once-in-a-lifetime crisis,” Diokno said. “These new realities call for bolder but appropriate moves on the part of the BSP.”

President Rodrigo Duterte on Tuesday extended measures covering over half of the population aimed at limiting social contact, to slow the spread of a virus that has infected 4,428 people in the country and caused the deaths of 247.

Policies restricting movement and gatherings have been in place in and around the capital Manila for almost a month, dampening domestic consumption, a key driver of economic growth.

“The monetary authority’s job, in coordination with fiscal authorities, is to manage a ‘soft’ landing and ensure economic takeoff begins quickly once the pandemic fades,” Diokno said.

Guided by its mandate as the country’s central monetary authority, and in accordance with the provisions of the New Central Bank Act, Diokno said the BSP deems it necessary to take extraordinary measures to complement the national government’s broad-based health and fiscal programs in mitigating the impact of COVID-19.

“By ensuring sufficient liquidity in the financial system, the BSP aims to assist our financial intermediaries in responding to the needs of Filipino households and businesses amid these challenging times,” Diokno said.

These measures include purchases of Government Securities in the Secondary Market; reduction in the Overnight Reverse Repurchase Volume Offering; and repurchase Agreement with the National Government.

These extraordinary measures complement earlier actions taken by the BSP to shore up market confidence and cushion domestic economic activity.

Aside from the cumulative 75-basis-point reduction in the monetary policy rate since February 2020, BSP has also reduced the reserve requirement ratios of universal and commercial banks as well as non-bank financial institutions with quasi-banking functions by 200 bps; suspended the term deposit facility auctions for certain tenors; reduced the term spread on the peso rediscounting loans relative to the overnight lending rate to zero; and relaxed various regulations pertaining to compliance reporting, calculation of penalties on required reserves and single borrower limits.

“The BSP reassures the Filipino people of its commitment and readiness to deploy its full range of instruments to provide liquidity and ensure the efficient functioning of the domestic financial market,” Diokno said.

“We will continue to work closely with market participants and other relevant government agencies in monitoring the situation and carrying out appropriate policy responses in a timely manner, in support of the National Government’s broader efforts to mitigate the adverse impact of the health crisis on the economy at large,” he added.