More room for easing but BSP prefers to wait
Published May 4, 2020 12:00 am
By Lee C. Chipongian
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the manageable inflation environment is conducive for more easing but a pause is also warranted as the Monetary Board assesses the impact of the 125 basis points (bps) interest rates cut on the economy and the markets amid the pandemic.
Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno. (Bloomberg photo)
For April, Diokno said inflation could settle at a flat two percent from March’s 2.5 percent. The BSP earlier released its April inflation forecasts of 1.9 percent to 2.7 percent. Inflation has been declining from January’s 2.9 percent to February’s 2.7 percent.
“Clearly, the more benign inflation provides the Monetary Board greater room for easing,” according to Diokno while awaiting the government’s release of the latest inflation number for April today (Tuesday, May 5).
But, Diokno added, because monetary policy has a lag of 12 to 18 months – “it would be prudent on the part of the Monetary Board to see how the aggressive policy measures it has adopted have been absorbed by the financial system.”
“The BSP will continue to monitor market conditions to any emerging risks to the outlook for both inflation and economic growth, thus, ensure its resolve to deploy necessary policy responses and measures, if warranted,” the BSP chief said.
Diokno said: “(The) April inflation poll yielded a median estimate of two percent, which if realized means the third successive month of falling inflation this year. The BSP forecasts 2020 annual inflation rate to be 2.2, lower than the 2.75 percent key rate.”
The benign inflation has allowed the Monetary Board to cut rates for three monetary policy meetings in a row. The first reduction was on February 6 of 25 bps, another 50 bps on March 19 and an off-cycle 50 bps policy action last April 16 for a cumulative 125 bps.
“In response to the coronavirus pandemic, BSP cut policy rates by 125 bps and RRR (reserve requirement ratio) by 200 bps,” he said. “In addition it adopted a policy whereby new loans granted to MSMEs (micro, small and me¬dium enterprises) are recognized as a form of alternative compliance with reserve requirements effective April 24, 2020 until December 30, 2021.”
“Moreover the BSP reduced the credit risk weights of loans granted to MSMEs that are current in sta-tus to 50 percent from 75 percent (qualified MSME portfolio) and 100 percent (non-qualified MSME portfolio),” Diokno added.
“The reduced credit risk weight will be subject to review by end- December 2021 (and) this will en¬able BSP to assess its effectiveness in channeling funds to the MSME sector before evaluating whether further easing is warranted,” he said.
For 2020, the Monetary Board has an inflation target of 1.75 per¬cent to 3.75 percent approved last March, but over the weekend, it said that its target range is unchanged at two-four percent for 2020-2022.
According to the BSP, the 1.75 percent to 3.75 percent inflation “represents the range of what we project actual inflation to be for 2020 based on available data.”
Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno. (Bloomberg photo)
For April, Diokno said inflation could settle at a flat two percent from March’s 2.5 percent. The BSP earlier released its April inflation forecasts of 1.9 percent to 2.7 percent. Inflation has been declining from January’s 2.9 percent to February’s 2.7 percent.
“Clearly, the more benign inflation provides the Monetary Board greater room for easing,” according to Diokno while awaiting the government’s release of the latest inflation number for April today (Tuesday, May 5).
But, Diokno added, because monetary policy has a lag of 12 to 18 months – “it would be prudent on the part of the Monetary Board to see how the aggressive policy measures it has adopted have been absorbed by the financial system.”
“The BSP will continue to monitor market conditions to any emerging risks to the outlook for both inflation and economic growth, thus, ensure its resolve to deploy necessary policy responses and measures, if warranted,” the BSP chief said.
Diokno said: “(The) April inflation poll yielded a median estimate of two percent, which if realized means the third successive month of falling inflation this year. The BSP forecasts 2020 annual inflation rate to be 2.2, lower than the 2.75 percent key rate.”
The benign inflation has allowed the Monetary Board to cut rates for three monetary policy meetings in a row. The first reduction was on February 6 of 25 bps, another 50 bps on March 19 and an off-cycle 50 bps policy action last April 16 for a cumulative 125 bps.
“In response to the coronavirus pandemic, BSP cut policy rates by 125 bps and RRR (reserve requirement ratio) by 200 bps,” he said. “In addition it adopted a policy whereby new loans granted to MSMEs (micro, small and me¬dium enterprises) are recognized as a form of alternative compliance with reserve requirements effective April 24, 2020 until December 30, 2021.”
“Moreover the BSP reduced the credit risk weights of loans granted to MSMEs that are current in sta-tus to 50 percent from 75 percent (qualified MSME portfolio) and 100 percent (non-qualified MSME portfolio),” Diokno added.
“The reduced credit risk weight will be subject to review by end- December 2021 (and) this will en¬able BSP to assess its effectiveness in channeling funds to the MSME sector before evaluating whether further easing is warranted,” he said.
For 2020, the Monetary Board has an inflation target of 1.75 per¬cent to 3.75 percent approved last March, but over the weekend, it said that its target range is unchanged at two-four percent for 2020-2022.
According to the BSP, the 1.75 percent to 3.75 percent inflation “represents the range of what we project actual inflation to be for 2020 based on available data.”