The Bangko Sentral ng Pilipinas injected around P1.3 trillion in the financial system through the implementation of various measures to ensure sufficient liquidity during the lockdown implemented by the government to contain the spread of coronavirus.
BSP Governor Benjamin Diokno said in a presentation during the Pre-SONA forum that the Monetary Board acted swiftly and promptly implemented these measures to complement the government’s broader health and fiscal programs amid the sustained uncertainties brought about by the pandemic.
“The BSP’s liquidity-enhancing measures are intended to reassure markets, restore business confidence and ensure quick recovery once the community quarantines are lifted,” Diokno said.
“Besides the cumulative 175-basis point reduction in the policy rate, the 200 basis points reduction of the reserve requirement among others, the BSP also implemented other extraordinary liquidity measures to complement the national government’s efforts to mitigate the impact of COVID-19,” he said.
Diokno said these included the repurchase agreement with the national government, the purchase of government securities in the secondary market and the remittance of advance dividends to the national government.
“The estimated BSP liquidity injection to the financial system is about P1.3 trillion, equivalent to 6.4 percent of the country’s GDP. The implementation of these measures has helped ensure ample liquidity as well as the proper functioning of the financial system during the lockdown,” Diokno said.
Diokno said earlier there was a need for substantial targeted policies to prevent the economy from further slowing down.
Meanwhile, an economist of the Bank of the Philippine Islands said the BSP would likely refrain from further reduction of policy rates as inflation was expected to accelerate in the coming months.
BPI lead economist Jun Neri said with the policy rate at a historical low of 2.25 percent, it was now below the inflation average of 2.5 percent in the first half.
“The possibility of higher inflation in the coming months may prevent the central bank from cutting its policy rates further. Moreover, the benefits from additional rate cuts may be marginal already,” Neri said.
“Cutting interest rates further may no longer stimulate lending in a significant manner since the demand for goods and services is very weak. Businesses will most likely control their capital expenditures despite the low interest rate environment given the risks and uncertainties in the country,” Neri said.
He said banks were likely to remain risk-averse given the risk of massive corporate revenue losses.
“What the economy needs right now is an improvement in the country’s health situation and substantial spending on the part of the government that can offset the losses of the private sector,” he said.
Inflation in June picked up a three-month high of 2.5 percent from 2.1 percent in May, on increases in transport, alcoholic beverages, tobacco and fuel prices, according to the Philippine Statistics Authority.
