By Lee C. Chipongian
The Bangko Sentral ng Pilipinas’ (BSP) recent liquidity support policy measures in response to the COVID-19 pandemic is already a move to “print” more money, according to Monetary Board members.
“(To) print money is just a figure of speech,” said Monetary Board member, Felipe M. Medalla, an economist and former Socio- Economic Planning secretary.
The way BSP print money is to increase banks’ deposit with the central bank to enable them to lend out more funds to both corporates and individuals. If banks require more cash or currency, they can withdraw such cash from the higher bank deposits they have with the BSP.
“We can increase money supply by lending directly to the government (for example, the ₱300 billion repo) and cutting the reserve requirements (so banks can lend more money or buy more government securities),” noted Medalla.
Economists and academics from the UP School of Economics (UPSE) have suggested to the BSP to print more money for the government’s fund-raising efforts to finance the pandemic relief program and the cash aid to the low-income group.
Monetary Board member, economist and food security expert, Bruce J. Tolentino agreed with Medalla, that liquidity has been released. Last March 23, the BSP advanced zero-rate loan to the government amounting to ₱300 billion via a repurchase agreement wherein the BSP will purchase government securities from the Bureau of the Treasury.
“The earlier action by BSP to purchase government securities from the DOF (Department of Finance) is consistent with UPSE's proposal and was thoroughly discussed and understood by the Monetary Board,” said Tolentino.
“More of the same can be done as necessary,” he added, referring to the suggestion that the central bank should print more money.
The BSP Charter allows it to buy government securities from the secondary market. “Banks buy more government securities because they know they can sell them to BSP. We can also cut our outstanding volume of term deposit facility and reverse repo with banks so the banks will lend or buy government securities with the money they can no longer place with us. We are doing all of the above," said Medalla, who was a former dean of UPSE.
In addition, Medalla said the BSP has also reduced the interest rate that the BSP pay to banks – “together with the above measure (this will) make banks find it attractive to buy government securities.”
The Monetary Board has cut benchmark rate by 125 basis points (bps) so far this year which the BSP described as “aggressive rate cuts” on top of the asset purchases.
The BSP also reduced the reserve requirement ratio by 200 bps as well as allowed loans to micro, small and medium enterprises as part of banks’ compliance with the required reserves.