HSBC: More cash won’t boost PH growth unless COVID-19 is controlled

MANILA, Philippines—Further monetary easing by the central bank will do little to prop Philippine economic growth unless local authorities are able to successfully control coronavirus transmission in the country, which has so far taken ill 307,288 people and killed 5,381.

Thus said Hong Kong-based banking giant HSBC in its latest report which also noted that “people’s mobility in the country remains the lowest in Asean, and there hasn’t been much improvement even after the lockdown measures in Metro Manila were eased in mid-August.”

“Despite the challenging economic outlook, we don’t believe additional rate cuts at this juncture would be supportive of growth,” HSBC said.

“The Bangko Sentral ng Pilipinas has already been one of the most aggressive central banks globally, reducing its policy rate by 175 basis points to a record low of 2.25 percent this year,” it added.

HSBC said that, despite this, bank lending growth has declined to its lowest pace in over 10 years.

“This suggests that corporate and individual borrowers remain wary of adding leverage given ongoing economic uncertainties,” the bank said.

“Thus a containment of the virus domestically is likely to be a prerequisite before additional rate cuts lead to a pick-up in loan growth,” it said

Because of this, HSBC pushed back its earlier 25-basis point rate cut forecast to the first quarter of 2021.

The Monetary Board will meet on Thursday (Oct. 1) to decide on interest rate policy, although BSP Governor Benjamin Diokno had recently indicated that he wanted to assess how the central bank’s earlier measures have impacted the economy before acting further.

HSBC noted that the Philippine economy continues to reel from COVID-19, with new daily cases also remaining elevated, despite slowing from their peak.

“The persistence of COVID-19 will continue to weigh on the country’s economic recovery in the quarters ahead,” the bank said, adding that it expects growth of just 5.8 percent in 2021, after a 9.6-percent contraction this year.

HSBC also said that, with the impact of rate cuts limited for now, “the BSP appears more willing to move beyond its traditional monetary tools to stimulate growth.”

Earlier this month, President Rodrigo Duterte signed an economic stimulus bill which raised the amount the central bank can provide to the government for COVID-19 relief: an additional 10 percentage points on top of the 20 percent of the government’s average revenue over the last three years.

This is equivalent to an additional P282 billion or 1.4 percent of gross domestic product. The additional amount must be borrowed within two years and repaid within one year, with a potential one-year extension.

The earlier 20 percent has a maximum repayment deadline of six months.

HSBC said the passage of this law allows for more “burden sharing” between fiscal and monetary authorities, and is similar to programs passed in other countries, like Indonesia, but added that “it also raises concerns over debt monetization.”

TSB