By Lee C. Chipongian
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said another 25 basis points (bps) interest rate cut – for a cumulative 75 bps – is possible this year due to the prolonged 2019 coronavirus (COVID-19) outbreak.
Diokno earlier has committed to reduce benchmark rate by 50 bps in 2020. On February 6, the Monetary Board already served the first 25 bps cut with the last 25 bps expected in the second quarter.
“(I’m) not totally ruling out a cut of more than 25 bps,” he said, referring to the other half of the earlier announced 50 bps cut for this year, plus 25 bps. This would result in a total of 75 bps rate reduction for 2020.
Diokno reiterated that the BSP and the Monetary Board in deciding its policy stance, has much monetary and fiscal space to work around with. But should “things deteriorate much beyond the original forecast, we might consider an additional (rate reduction).”
“(I’m) not totally ruling out a cut of more than 50 bps. Not ruling out 75 bps cut (in total),” he added.
Diokno said he has given BSP Deputy Governor Francisco G. Dakila Jr. instructions to revisit estimates that were earlier announced as far as the impact of the COVID-19 on the local economy is concerned given the latest data gathered.
Diokno said the central bank’s main consideration is the “deadliness” of the COVID-19 and while not as critical as the 2003 SARS episode, the number of infected persons and casualties is still alarming, especially considering that China has grown as an economy with a bigger global link. China accounts for 30 percent of global growth.
“We need to revisit the situation,” said Diokno. He also said the BSP has to verify that the data they are getting from other countries is accurate.
“We realized that (our previous) analysis may not be appropriate anymore (with the escalated) coronavirus situation. When we analyze things, we build scenarios … depending on how bad the situation is. We will deploy the necessary tools,” he added. This would include adjusting monetary policy stance.
On February 14, the BSP released its initial estimates on the impact of COVID-19 which could hit the economy in the near term through “disruptions” to both the tourism and associated services sectors such as hotel and restaurants. On an annual basis, the BSP said the virus outbreak could lower gross domestic product growth by 0.3 percentage point (ppt) in 2020.
Chinese tourist arrivals in 2019 grew by 40.2 percent year-on-year as some 1.6 million Chinese tourists visited the Philippines. China is next to South Korea as highest source of foreign tourists here, said Diokno.
Diokno has said that the tourism direct gross value added (GVA) in the Philippines was about 12.7 percent of nominal GDP. Taking into account the SARS outbreak in 2002 and 2003, the BSP estimated that the COVID-19 impact is to lower the growth rate of GVA by 2.1 ppts to five ppts in the first quarter this year and 1.4 ppts to 3.6 ppts in the second quarter. These numbers are currently being reviewed.