BSP seen to match deepening crisis with deeper rate cut

The central bank will likely cut its key interest rate by a larger amount when the policy-ma­king Monetary Board convenes on Thursday, in an effort to buttress Philippine economic growth that is being threatened by the coronavirus pandemic.

At the same time, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno pointed out that authorities continue to have substantial leeway to ease monetary policy, with interest rates still above levels seen before a string of hikes implemented in 2018.

“In the light of the synchronized global monetary easing, the collapse of the world oil prices, the worsening COVID-19 outbreak, a slowing global economy, muted inflation and inflation expectation, the BSP might consider a deeper cut, say 50 basis points (bps),” he said in a mobile phone message to reporters.

But any such action will come during the policy-setting meeting of the central bank’s seven-man board that happens every six weeks and not a day sooner.

“There will be no off-cycle meeting,” he said. “The Monetary Board will meet as scheduled on Thursday.”

Diokno noted that, to date, the US Federal Reserve had reduced its benchmark rate by 170 bps, the New Zealand central bank by 75 bps and South Korea’s by 50 bps. This, coupled with the low inflation rate regime prevailing in the Philippines opens the door for a deeper rate cut locally, he explained.In a separate interview with Bloomberg TV, Diokno explained that the Philippine monetary authority had so far reduced local interest rates progressively by 100 bps, after the cumulative 175-bps hike it imposed to slay high inflation in 2018.

That means the BSP still has leeway for a cut of at least 75 bps, and possibly even more, when the low inflation rate is taken into account.

Diokno explained that, in addition to monetary space, the government also had ample fiscal space, because of the low debt-to-gross domestic product rate the country is currently enjoying.

“Monetary policy is most effective when used in conjunction with fiscal policy,” he said.

Earlier, the central bank chief sought to reassure jittery financial markets that the country’s economy was strong enough to weather the COVID-19 pandemic, saying what was being faced was a “public health crisis” and not an economic crisis. INQ