BSP to manage 'soft landing' from expected global recession
Published Apr 13, 2020 12:00 am
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 including a “deeper” rate cut.
Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno. (Bloomberg photo)
“These new realities call for bolder but appropriate moves on the part of the BSP,” Diokno said over the weekend. “The challenge is to cushion the impact of the economic slowdown on people, firms and the financial system.”
Diokno said the BSP will “manage a ‘soft’ landing” by reducing key benchmark rates and to “ensure that economic takeoff begin quickly once the pandemic fades”.
This meant cutting the interest rate or the overnight reverse repurchase (RRP) which is currently at 3.25 percent, to below three percent. Diokno had said before that a recession could happen as an impact of the nationwide COVID-19 lockdowns but after two quarters of negative growth, he thinks the economy will recover by the third or fourth quarter.
“The Philippines is now faced a once-in-a lifetime crisis,” the BSP chief said on Sunday. “It is now clear that reverting to where we were in 2018 — policy rate at three percent — is no longer an appropriate policy goal. A deeper cut is warranted in response to the expected sharp economic slowdown; on the other hand, inflation is likely to end closer to the lower bound of the two-four percent target range.”
He reiterated that the BSP will remain data dependent and preemptive in that “monetary policy works with a lag” of about 12 months. Since assuming the BSP governorship last year, the Monetary Board under Diokno has slashed the policy rate by a total 150 bps. In 2018, to curb the high inflation at the time, the BSP raised the rate by 175 bps.
The central bank will rely on the latest available data especially when deciding to reduce banks’ reserve requirement ratio (RRR) to release more liquidity in the financial system.
The Monetary Board has approved a total 400 basis points (bps) reduction in RRR. Last March 30, the BSP cut the reserves ratio by 200 bps and releasing about ₱225 billion as fresh funds.
“The Monetary Board has authorized me to cut the RRR by 400 bps; I’ve cut it by 200 bps recently; the additional 200 bps cut is forthcoming based on available data, the needs of the economy, and the utilisation of the additional liquidity,” said Diokno.
Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno. (Bloomberg photo)
“These new realities call for bolder but appropriate moves on the part of the BSP,” Diokno said over the weekend. “The challenge is to cushion the impact of the economic slowdown on people, firms and the financial system.”
Diokno said the BSP will “manage a ‘soft’ landing” by reducing key benchmark rates and to “ensure that economic takeoff begin quickly once the pandemic fades”.
This meant cutting the interest rate or the overnight reverse repurchase (RRP) which is currently at 3.25 percent, to below three percent. Diokno had said before that a recession could happen as an impact of the nationwide COVID-19 lockdowns but after two quarters of negative growth, he thinks the economy will recover by the third or fourth quarter.
“The Philippines is now faced a once-in-a lifetime crisis,” the BSP chief said on Sunday. “It is now clear that reverting to where we were in 2018 — policy rate at three percent — is no longer an appropriate policy goal. A deeper cut is warranted in response to the expected sharp economic slowdown; on the other hand, inflation is likely to end closer to the lower bound of the two-four percent target range.”
He reiterated that the BSP will remain data dependent and preemptive in that “monetary policy works with a lag” of about 12 months. Since assuming the BSP governorship last year, the Monetary Board under Diokno has slashed the policy rate by a total 150 bps. In 2018, to curb the high inflation at the time, the BSP raised the rate by 175 bps.
The central bank will rely on the latest available data especially when deciding to reduce banks’ reserve requirement ratio (RRR) to release more liquidity in the financial system.
The Monetary Board has approved a total 400 basis points (bps) reduction in RRR. Last March 30, the BSP cut the reserves ratio by 200 bps and releasing about ₱225 billion as fresh funds.
“The Monetary Board has authorized me to cut the RRR by 400 bps; I’ve cut it by 200 bps recently; the additional 200 bps cut is forthcoming based on available data, the needs of the economy, and the utilisation of the additional liquidity,” said Diokno.