The Bangko Sentral ng Pilipinas is expected to make a more aggressive move Thursday with a 50-basis-point reduction in benchmark interest rates to counter the economic impact of coronavirus disease 2019 and support the economy, an economist said Monday.
ING Bank Manila senior economist Nicholas Mapa said in a report with the global central banks carrying out what appears to be a coordinated action to face the onslaught of COVID-19 on the global economy, the BSP was widely expected “to join the chorus.”
“In light of the Fed move, we expect [BSP Governor Benjamin] Diokno to front load his policy action, and we revise our expectation for Thursday’s meeting for at least a 50 bps rate cut and a possible announcement for additional liquidity via a reduction in reserve requirement or a lowering of the volume for its term deposit facilities,” Mapa said.
The US Federal Reserve cut its benchmark interest rate on Sunday by a full percentage point to near zero. The Fed’s key rate is now 0 percent to 0.25 percent, matching the record low in 2015. The Fed also said it would increase its bond holdings by $700 billion.
Diokno earlier said that the country’s growth fundamentals remained strong and that growth could still hit 6 percent “under the worst case scenario” with the BSP standing ready to deploy all its tools if needed.
“With inflation forecast to tank and economic activity expected to ground to a halt, there would be absolutely no more reason to delay the planned dialing back of previous rate hike cycles,” Mapa said.
“Diokno will likely need to accelerate his bid to unwind the 2018 rate hikes to bring out all the heavy artillery with a likely 50 bps rate reduction or even going “all in” with a 75 bps rate reduction,” Mapa said.
He said should liquidity conditions tighten, “we expect BSP to unleash additional liquidity via reductions to the volume in term deposit facility and or reserve requirements.”
The BSP would announce its policy decision online with the Monetary Board meeting likely to be conducted via a teleconference. Mapa said he was not ruling out an advance action by the BSP ahead of the Thursday meeting with Diokno likely to roll out at least 50 bps worth of rate cuts and up to 75 bps and possible release of additional liquidity.
“What’s clear is that action is required and given the threat presented, BSP will need to bring out the heavy artillery,” Mapa said.
Diokno said over the weekend the country would remain resilient against the impact of COVID-19 and that monetary authorities remained ready to deploy the necessary measures to shield the economy and the financial markets from the threats of the outbreak.
“The Monetary Board is ready to deploy any or all its policy tools, as appropriate, to address all challenges to our own financial markets and growth prospects,” Diokno said in a statement.
He said the coronavirus breakout was a public health crisis”•not an economic crisis and the focus should be on how to delay the spread of the disease.
“But there is no reason to believe that the COVID-19 crisis could severely cut the Philippine growth momentum. The truth is that the economic fundamentals are on our side. Even under the worst possible
scenario, the Philippines can still grow this year and in the medium term by about 6 percent,” he said.