Monetary authorities are considering additional policy measures to ensure that the severe economic contraction posted in the second quarter does get worse but instead nurse a recovery in the months ahead amidst the lingering pandemic.
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno reiterated yesterday that gross domestic product (GDP) would not fall further after the April-June’s 16.5 percent contraction but how to address this is the paramount consideration of the August 20 Monetary Board policy.
“I’ll wait for advise from the BSP Advisory Committee,” said Diokno when asked how the economic recession will steer monetary policy direction, particularly since the second quarter contraction was higher than anticipated.
“I believe the worst is behind us. But we’re not out of the woods yet,” said Diokno.
The next central bank advisory committee meeting is on August 14, usually a week before the Monetary Board policy meeting. The committee, according to the BSP, exists to deliberate, discuss and make recommendations on monetary policy to the Monetary Board. Diokno, who heads the Monetary Board, also chairs this committee.
After going through lockdown and containment measures since March, the BSP chief said the government and the people now has a clearer idea of the nature of the pandemic and should be able to work around and through it until the COVID-19 vaccine is available.
“I think we know more about the virus now than before and policy makers know more about the appropriate response to the pandemic. We know from our experience and the experiences of other jurisdictions of what works and what doesn’t work,” said Diokno.
But, he said: “The days of comprehensive, nationwide lockdown are over; they exact a heavy damage to the economy, jobs, livelihoods, and incomes,” he has said earlier that the two-week current stricter community quarantine will not make “material difference” because the economy was still headed to hit “rock bottom” in the second quarter.
Diokno, the Duterte government’s former budget secretary, stressed that the attention and government efforts should center on managing community quarantines on a localised village level. “Isolation facilities should be built in all major cities and large municipalities, in support of the government’s test, trace and treat strategy, ” he said.
The Monetary Board since February this year has reduced the policy rate by a cumulative 175 basis points (bps). The last decision to cut the overnight reverse repurchase facility by 50 bps to its lowest level yet of 2.25 percent, was on June 26 as the BSP assessed the impact of the COVID-19 pandemic on the economy. The upcoming August 20 policy meeting is the BSP’s fifth of a total eight meetings for this year.
According to Diokno, “the second quarter GDP numbers were largely due to the comprehensive lockdown during the quarter. As we gradually reopen the economy, economic activity has started to pick up. No doubt, given the sharp drop of the economy in the second quarter, I’m convinced that the third quarter will be better than the second quarter, and that the fourth quarter will be much better than the third quarter.”
Diokno added that “a big part of the success in overcoming this crisis may be attributed to leadership, clear messaging, and human behavior. Each individual has a role to play in winning the war against the virus. The virus won’t go away soon, so we have to learn to live with it.”
Following two quarters of GDP contraction or 0.2 percent in the first quarter and 16.5 percent in the second quarter, the economy is now officially in recession. GDP in the April-June months plunged 16.5 percent from the same period in 2019 due to the pandemic and the strict community quarantine measures. The government said that the economy has not been in this kind of slump in 40 years.
ING Bank economist Nicholas Mapa said the second quarter GDP, while still projected to contract, was worse than expected. “The Philippine economy crash landed into recession with the second quarter GDP meltdown showcasing the destructive impact of lockdowns on the consumption-dependent economy.” Mapa said that with the rising unemployment and decreasing consumption — “investor sentiment will likely go into freefall with the recent investment boom snuffed out by the pandemic.”