BSP ready with economy-boosting moves if COVID-19 threatens growth

The Bangko Sentral ng Pilipinas is ready with measures to boost growth—specifically through another round of interest rate cuts—should the ongoing new coronavirus (COVID-19) outbreak last longer and threaten the domestic economy.

Thus said BSP Governor Benjamin Diokno, who noted that the financial regulator had room to ease monetary policy further thanks to its earlier success of taming inflation, which had hit its highest level in almost a decade only two years ago.

“The [Monetary] Board was of the view that [in] a tame inflation environment, there is a room for further preemptive reduction in the policy rate to support market confidence,” he said on Tuesday.

In particular, he said the highest policy-making body of the central bank “noted the possible adverse impact of the spread of the COVID-19 on global market sentiment as well as on domestic economic activity in the coming months.” Last year—as a preemptive move against the risks associated with lingering sluggish global growth—the BSP reduced the policy rate by 25 basis points in May, August and September 2019, respectively. And in its most recent monetary policy stance meeting early last month, the Monetary Board cut the policy rate by another 25 basis points.

The BSP has another three quarters of a percentage of rate cuts to go before it completely rolls back the 175 basis points it implemented in 2018 to tame consumer price hikes that year.

As this developed, market watchers urged policymakers to ramp up policies aimed at buttressing the Philippine economy against the threat of a COVID-19-induced slowdown.

“With the government estimating a growth hit of up to a full percentage point should COVID-19 persist, it’s time for the government to flex both its fiscal and monetary muscle to shield the economy from the impending slowdown,” ING Bank Manila senior economist Nicholas Mapa said.

“Weaker tourist receipts, exports and remittances are all seen to buffet the economy in 2020 but the Philippines is blessed to have space on both the fiscal and monetary front to counter Covid,” he pointed out.

The ING economist said that, on the fiscal front, he expected the government to roll out “the full extent of its double-headed budget” to continue the administration’s infrastructure program and to push for projects to stimulate the domestic economy. This is especially important since the virus outbreak will mean the country will have to rely less on “imported consumption” brought by tourism and the purchasing power from remittances of expatriate Filipino workers.

“Meanwhile, we expect the BSP to carry on with its planned 50 bps policy rate cut total for 2020 while also injecting fresh liquidity when the financial system shows the ability to absorb the fresh funds into the real economy,” Mapa said.