Philippine central bank slashes rates again to help businesses mitigate coronavirus impact
By Darlene Basingan
MANILA, NNA – The Philippine central bank has made another emergency move to help keep the pandemic-stricken economy afloat by slashing policy interest rate by 50 basis points to a 2.75 percent.
In an announcement on Thursday, the Bangko Sentral ng Pilipinas (BSP) also reduced overnight deposit and lending rates by 50 basis points to 2.25 percent and 3.25 percent respectively.
The big cuts will help businesses steer through the economic storm as the country grapples to contain the spread of the coronavirus with shutdowns and home quarantines. Increasing lending support to MSMEs (Micro, Small and Medium Enterprises) would help ensure adequate liquidity and lower credit cost, said BSP in its statement.
“The monetary initiatives will also quicken economic recovery as the pandemic fades,” the bank said.
BSP governor Benjamin Diokno had earlier indicated the necessity for a “deeper rate cut” as the economy was expected to head toward a sharp slowdown due to stringent lockdown measures to combat the contagion.
“The off-cycle rate cut is meant to strongly encourage lending to various sectors, especially the most vulnerable, amid the Covid-19 pandemic,” Diokno said in the statement.
Diokno said it was better for the monetary board to set the benchmark rate earlier than the scheduled rate meeting on May 21 given that “monetary policy works with a lag.”
Meanwhile, analysts believe the central bank will cut rates further in the weeks or months to come.
ING Bank Manila senior economist Nicholas Mapa expects BSP to trim its benchmark rates by 25 basis points by May, and reduce the reserve ratio requirement by another 200 basis points before the end of April.
Michael Ricafort, economist at the Rizal Commercial Banking Corp. also expects a 25-basis points rate cut.
“There is no better time to aggressively cut local policy rates than now as monetary easing measures are needed most by the economy right now and really meant or intended for times such as this one,” Ricafort told NNA in an email.
The central bank had cut the benchmark rate twice in the past two months by a total of 75 basis points to 125 percent. It also reduced the reserved ratio requirement by 2 percentage points.
The BSP also bought government bonds worth 300 billion pesos ($5.9 billion) and provided relief measures to lenders.
In mid-March, the country's main island of Luzon was placed under a lockdown, which has been extended till April 30. This has put the economy to almost a standstill and caused the loss of more than 1 million jobs.
Philippine finance minister Carlos Dominguez recently warned that the country may suffer a zero to negative 0.8 percent economic growth this year, despite the government spending massive amounts to counter the coronavirus fallout.
In its report this month, state think-tank Philippine Institute for Development Studies said the economy risks losing between 276.3 billion pesos and 2.5 trillion pesos depending on how poorly it would perform.
The finance department recently announced a stimulus package worth 1.17 trillion pesos or 5 to 6 percent of the country’s GDP. The bulk of it covered cash subsidies for workers and small businesses.
Alarmingly, the Philippines has the most number of Covid-19 cases in Southeast Asia, with 5,660 confirmed cases as of Thursday.
The rise in cases and quarantine violations has prompted the presidential palace to consider a total lockdown of the country or a tougher implementation of the enhanced community quarantine, said its spokesman in a virtual media briefing Thursday.