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Published
By Lee C. Chipongian
For a controlled soft landing in an economic slowdown, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said they are prepared to deploy appropriate and timely policy tools to address “new realities” amid a global pandemic that includes a “deeper” rate cut.
Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno. (Bloomberg photo)
“These new realities require bolder but appropriate moves by the BSP,” Diokno said over the weekend. “The challenge is to buffer the impact of the economic slowdown on people, businesses and the financial system.”
Diokno said the BSP “will manage a” soft “landing by reducing key benchmark rates and to” ensure that the economic takeoff begins quickly once the pandemic fades. “
This meant reducing the interest rate or reverse overnight repurchase (RRP) which is currently at 3.25 percent, down from three percent. Diokno had previously said that a recession could occur as an impact of national COVID-19 blockades, but after two quarters of negative growth, he believes the economy will recover in the third or fourth quarter.
“The Philippines is now facing a once in a lifetime crisis,” the BSP chief said Sunday. “It is now clear that going back to where we were in 2018 – three percent policy rate – is no longer an appropriate policy objective. A deeper cut is warranted in response to the expected sharp economic slowdown; on the other hand, it is likely that inflation ends closer to the lower limit of the two and four percent target range. “
He reiterated that the BSP will remain dependent on data and preventive that “monetary policy works with a delay” of about 12 months. Since taking over the BSP governance last year, the Diokno Monetary Board has reduced the policy rate by a total of 150 bp. In 2018, to curb high inflation at that time, the BSP increased the rate by 175 bp.
The central bank will depend on the latest available data, especially when it decides to lower the banks reserve requirement index (RRR) to free up more liquidity in the financial system.
The Monetary Board approved a total reduction of 400 basis points (bp) in RRR. Last March 30, the BSP reduced the reserve ratio by 200 bp and released around ₱ 225 billion as new funds.
“The Monetary Board authorized me to reduce the RRR by 400 bp; I have reduced it 200 bps recently; The additional 200 bps cut will be made based on available data, the needs of the economy and the use of additional liquidity, ”said Diokno.
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