By Lee C. Chipongian
The Bangko Sentral ng Pilipinas (BSP) is calling for a coordinated and timely response from central banks – both regional and outside of Asia – to curb the adverse effects of the coronavirus or COVID-19 pandemic on the global economy and financial markets.
“The BSP believes that central banks could play a critical role in addressing the potential fallout. Given the extensive cross-border linkages among economies, the shock has resulted in dampening confidence across the globe. Central banks, therefore, must stand ready to deploy multiple tools in their arsenal when warranted,” the BSP said in a statement.
In an unprecedented move, the BSP is extending a loan to the National Government (NG) by buying P300 billion worth of government securities from the Bureau of the Treasury (BTr) under a repurchase agreement that has a repayment period of up to six months.
This is in effect an emergency advance to the NG at zero interest, which the BSP is allowed to transact under its charter. The advantage is that the P300 billion will go directly to the BTr from the BSP without going through the banks to borrow the funds.
BSP Governor Benjamin E. Diokno said the purpose of the agreement is to support NG programs to contain the spread of COVID-19 and to cushion the impact of the extensive nationwide lockdown on the local economy.
In establishing clear roles as central banks during times of rare pandemics, the BSP and other central monetary authorities are getting assistance and guidance from international financial institutions such as the Asian Development Bank which is based here in the Philippines, the International Monetary Fund and from the Bank for International Settlements.
“(These institutions) have been providing timely and extensive support to authorities in terms of economic data, policy advice, and possible financing packages,” said the BSP.
“Some measure of coordination is also warranted,” stressed the BSP. “At the moment, some central banks have been conducting information exchange on how their jurisdictions currently cope with the situation, which has served as a learning platform for monetary authorities across the globe.”
Governments around the world are focused on containing the spread of the COVID-19 outbreak and central banks are dealing with uncertainties and risks it brings to ensure that essential services continue to be provided. “As capacities for key services can come under pressure, attention has been directed towards implementing effective domestic responses,” said the BSP.