BSP’s liquidity cushion for PH against pandemic tops P1 trillion

The central bank’s efforts to cushion the impact of the COVID-19 pandemic on the Philippine economy have led to a massive liquidity infusion into the local financial system topping a trillion pesos, so far.

The central bank head told business leaders on Wednesday (June 3) that he was ready to do more.

According to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno, the monetary authority has so far made available some P1.1 trillion in additional liquidity since the health crisis began unfolding three months ago.

At the same time, he gave his reassurance that the liquidity system will not be withdrawn abruptly once the economy starts to recover, to ensure that large and small firms will continue having access to cheap funds to rebuild their businesses.

“First, we will carefully manage the winding down of the regulatory relief measures,” he said.

“Proper timing for the unwinding of relief will help protect banks throughout the economic recovery phase and give them flexibility to extend more loans to the vulnerable sectors, which are much needed to speed up the country’s bounce-back process,” said Diokno.

The central bank chief addressed his speech to the business group which included Ayala Corp. chair Jaime Augusto Zobel de Ayala, Aboitiz group chair Sabin Aboitiz, BDO Unibank president Nestor Tan, Philippine National Bank president Wick Veloso, Ayala Corp. treasurer TG Limcaoco, Bank of the Philippine Islands president Cezar Consing, Security Bank president Sanjiv Vohra, economist Romeo Bernardo, Eastwest Bank president Antonio Moncupa and Asia United Bank chair Abraham Co.

“We will do a comprehensive assessment of how the crisis has affected BSP-supervised institutions in order to come up with data-driven, evidence-based policy on winding down and its timing,” Diokno told the business leaders.

Despite these measures, economists noted that the central bank cannot save the Philippine economy singlehandedly, urging other elements of the government and the private sector to do their part.

“With BSP delivering the goods early on and providing a fertile environment for a quick economic recovery, it appears that Diokno is waiting on his dance partner as the fiscal side of the fence readies the recovery plan,” ING Bank Manila senior economist Nicholas Mapa said.

“We cannot stress the point enough that prevention is always better than cure and that time is of the essence,” he added. “The cost of an overhaul and reviving a comatose economy will likely be more sizable than quick and timely measures to prevent a full blown economic depression.”

So far, the central bank’s policies in response to the pandemic included a cumulative 125-basis point cut in the policy rate, a 200-basis point reduction in banks’ reserve requirements, a P300-billion repurchase agreement with the national government, P20 billion in advance remittances of dividends to state coffers, the suspension of term deposit facility auctions for certain tenors, the reduction in the overnight overnight borrowing volume offering, and purchase of government securities in the secondary market.

The central bank chief also said the institution will continue to seek opportunities to further enhance the regulatory environment so that supervised institutions will be encouraged to embrace digital systems.

“Over the past year, we achieved successes in this area, including those that have allowed people to pay bills, do online purchases, and engage in other financial transactions even during quarantine,” he said.

Edited by TSB