BSP chief Diokno says he’s happy where key rate is

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PHILIPPINE CENTRAL BANK Governor Benjamin Diokno said the monetary easing implemented against the coronavirus was appropriate, and that further action will depend on the economic recovery.

“Right now, we’re happy where the current policy rate is,” Mr. Diokno said on Wednesday in an interview with Bloomberg. Monetary authorities are ready to use all the tools at their disposal, but are likely to do so only if “there’s more bad news.”

As lawmakers debate fiscal stimulus measures, the Bangko Sentral ng Pilipinas (BSP) has done much of the heavy lifting in terms of virus relief. Monetary authorities have cut the benchmark interest rate this year by 125 basis points to 2.75%, lowered the ratio of funds lenders must hold in reserve by 2 percentage points, eased rules on bank capital and reserves and deployed a bevy of measures to stabilize the bond market.

Mr. Diokno said negative interest rates are “out of the question” for the Philippines, adding that “some governments would want to have positive real rates.” Economic activity should pick up as businesses open, but there’s a risk that people will stay at home for fear of catching the virus, Mr. Diokno said.

President Rodrigo Duterte has begun loosening a lockdown on the capital region that has been among the world’s strictest. With activity slowing sharply in recent months, the Philippine economy faces its deepest contraction in three decades this year.

Policy makers are scheduled to meet again on the key rate on June 25.

The Bangko Sentral is leaving it up to the country’s Treasury to make use of additional repurchase agreements with the government.

Mr. Diokno also said moves made by the central bank have funneled an estimated P1.1 trillion ($21.9 billion) into the financial system, with bond-buying activities in the secondary market accounting for just a “small” portion of that.

The central bank participates in the foreign exchange market “only to smooth the fluctuations;” the strength of the peso and other regional currencies is “because of the weaker dollar.” — Bloomberg