BSP may cut rates earlier to head off virus’ adverse economic effects | Inquirer Business

BSP may cut rates earlier to head off virus’ adverse economic effects

By: - Business News Editor / @daxinq
/ 04:28 PM February 14, 2020

MANILA, Philippines — The central bank may accelerate its rate cut program for the year if the novel coronavirus takes a bigger toll on the country’s growth than what economic managers are currently expecting.

In particular, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the policy-making Monetary Board may implement the second 25-basis point rate cut he promised by as early as the second quarter of 2019.

“But for now, we are happy where we are,” he said, explaining that current forecasts see only a limited impact of the virus on the Philippines’ gross domestic product.


In a press briefing on Friday, Diokno said the COVID-19 (2019 novel coronavirus) outbreak “poses a downside risk to economic growth in 2020.”


The BSP’s initial assessment points to a potential dampening impact on the Philippine economy in the coming months mainly through disruptions to tourism and associated services.

Regional trade and manufacturing could also decline owing to potential breaks in global supply chains, as efforts to contain the outbreak continue to constrain the production and transportation of raw materials and finished goods.

“Indeed, the BSP notes that as the viral outbreak continues to spread across the globe, there could be attendant effects on domestic market sentiment and confidence,” he said.

The resulting uncertainty could, in turn, dampen investment and consumption, and thereby contribute to possible disinflationary risks.

Accordingly, the 25-basis-point policy interest rate cut earlier this month was intended as a preemptive move to support market confidence and ward off the possible spillover effects of the outbreak on domestic demand.

“Given a manageable inflation outlook over the next two years, a policy interest rate cut at this juncture would provide additional policy support to help the economy withstand increased external headwinds,” the BSP chief said.


He added that the BSP will continue to be vigilant as the situation unfolds and will assess its potential impact on the inflation outlook and on the entire economy.

“Going forward, the BSP stands prepared to calibrate its monetary instruments, and implement regulatory relief, as needed, to ensure that monetary and financial policy settings remain appropriate in supporting sustained non-inflationary growth over the medium term,” the central bank chief said.

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At the same time, Diokno said BSP emphasizes the need for timely and appropriate non-monetary measures that will further mitigate the macroeconomic impact of the viral outbreak. This will entail close coordination among the various agencies and branches of the National Government.

Edited by MUF

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TAGS: BSP, central bank, COVID-19, Rate cut

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