Monetary easing seen as BSP warns of COVID-19 impact
The global coronavirus outbreak can potentially have a negative impact on the Philippine economy over the near term, but the Bangko Sentral ng Pilipinas is ready with measures to counteract its adverse effects if necessary.
Thus said the country’s main monetary regulator even as it welcomed the lower inflation that was recorded for the month of February — coming in at only 2.6 percent — owing mainly to stable food and energy prices.
“The ongoing spread of COVID-19 could have an adverse impact on domestic economic activity and financial market sentiment in the coming months,” the central bank said in a statement, adding it will weigh this development when its Monetary Board holds its next monetary policy meeting on Mar. 19, 2020.
Market watchers expect the central bank to ease monetary policy further later this month in a bid to shore up the country’s economic growth, as the effects of virus outbreak are increasingly seen to be worse than initially expected.
According to Bank of the Philippine Islands lead economist Jun Neri, “the emergency cut of the Federal Reserve and the latest inflation print have solidified the likelihood of a BSP rate cut on March 19.”
He said a reserve requirement ratio reduction is also possible in the coming days given the improvement in bank lending.
“Governor Diokno said recently that they are not inclined to do an inter-meeting policy rate cut despite the surprise move of the Fed,” Neri said.
“However, they can do an immediate reduction in the RRR outside the regular monetary policy meetings,” he said.
The central bank noted that the February 2020 inflation of 2.6 percent was within the BSP’s forecast range of 2.4–3.2 percent, and that the latest inflation figure is consistent with its prevailing assessment that inflation is expected to steadily approach the midpoint of the target range in 2020 and 2021.
The risks to the inflation outlook are expected to be weighted to the upside for 2020, but are seen as tilted toward the downside in 2021, the central bank said, noting that upward adjustments in utility rates, petitions for transport fare hikes, and the impact of African Swine Fever on meat prices are the main upside risks to inflation.
“The BSP will ensure that the monetary stance remains consistent with its primary objective of maintaining price stability that is conducive to balanced and sustainable growth of the economy,” the central bank said.
