Value of BSP liquidity infusion nears a 10th of GDP

The total liquidity injected by the central bank into the financial system to buttress the Philippines against the ravages of the coronavirus pandemic is nearing a tenth of the local economic output, the agency’s chief said on Friday.

In a mobile phone message to reporters, Bangko Sentral ng Pilipinas (BSP) Gov. Benjamin Diokno said the monetary regulator had infused approximately P1.9 trillion—or $39.2 billion at the current exchange rate—in liquidity into the economy.

“This is equivalent to 9.6 percent of gross domestic product,” he said.

The amount included the new provisional advance of P540 billion that would be released to the national government this month to help it fund its response to the COVID-19 public health crisis.

“The BSP is working hand-in-hand with the national government to ensure that the coronavirus pandemic will leave [only a] little permanent scar on the Philippine economy and its people,” Diokno said.

The central bank has so far released a record amount of liquidity into the local financial system through various mechanisms, including interest rate cuts, direct loans to the national government for COVID-19 response expenses and regulatory relief measures for banks.

Since the onset of the pandemic, the regulator has cut its key interest rate by a total of 175 basis points and banks’ reserve requirement ratio by 200 basis points.

Last March, the BSP unveiled a massive stimulus program for the national government’s fight against the coronavirus pandemic by lending P300 billion to the Bureau of the Treasury.

Under the scheme, the Treasury issued debt securities that the central bank bought. The money that the Treasury received from this transaction was used to fund the government’s public health spending.

As this debt matured last month, the government is taking out another round of borrowings from the central bank after repaying the last one.

At the same time, however, the central bank wants to see more evidence that the economy will put the additional cash released into the financial system to good use before it eases monetary policy further.

Recently, the Monetary Board maintained the interest rate on its key overnight reverse repurchase facility—on which banks price their own loans—at 2.25 percent.

This massive liquidity infusion has so far shown no evidence of pushing the country’s inflation rate higher, as borrowers remain hesitant to take out new loans and banks remain cautious on underwriting new ones due to uncertainties over the pandemic.