MANILA, Philippines – The central bank’s generous support measures to buttress the Philippine economy and stabilize the financial system during the ongoing coronavirus pandemic will stay for as long as they are needed but, this early, regulators are already preparing for the time when its accommodative policies will be rolled back.
In a press briefing, Bangko Sentral ng Pilipinas Governor Benjamin Diokno assured his stakeholders that, once the crisis abates, the unwinding of COVID-19 relief measures will be data-driven, done gradually and prudently, and communicated correctly to all stakeholders.
“Timing is critical to the exit strategy, and this will be determined by the data that we will gather on inflation as well as on the capital and liquidity of banks and the financial system, which are essential to the decision-making process,” he said.
Diokno said regulators are now planning for the Philippines’ post-pandemic environment to make the banking sector emerge more robust, as with all previous financial crises faced by the country, as well as helping bring about a speedier recovery of the economy.
To this end, the central bank recently released a working paper — “Exit Strategies: How Do We Proceed?” by Eloisa Glindro, Hazel Parcon-Santos, Faith Christian Cacnio, Marites Oliva, and Laura Ignacio — which explained that the exit entails a reversion to policies that are consistent with the long-run economic growth path.
The paper stressed that the process should neither cause the premature withdrawal of support nor give rise to delays in necessary structural economic reforms.
It also highlighted the need for reforms to enhance further economic resilience, such as the continued deepening of capital markets and legislative measures promoting the use of electronic financial services.
Reforms on electronic financial services include measures institutionalizing national interoperable bills payment service; and mandating the adoption of e-invoicing system by corporations and big businesses and issuance of official electronic receipts. These also include measures mandating relevant government institutions to bolster the country’s telecommunications infrastructure critical in the delivery of electronic financial services; the passage of the E-Government Act; and amendments to the Consumer Act or the passage of a law to govern e-commerce.
To date, the BSP has deployed a wide range of measures to keep liquidity and credit flowing to households and businesses amid the pandemic.
These include the reduction in the overnight policy interest rate by a total of 175 basis points; lowering by 200 basis points of banks’ reserve requirements alongside additional modes of compliance to encourage bank lending to micro, small and medium enterprises affected by the pandemic; and purchases of government securities from domestic banks in the secondary market.
Aside from these, the BSP has entered into a three-month repurchase agreement with the Bureau of the Treasury to provide bridge financing to the National Government’s programs to counter the impact of COVID-19. The BSP also implemented measures to extend financial relief to borrowers, incentivize bank lending, promote continued access to financial services, and support continued delivery of financial services. [ac]