BSP throws P300-B lifeline to gov’t

THE Bangko Sentral ng Pilipinas (BSP) will buy short-term securities from the Bureau of the Treasury (BTr) to support the government in lessening the impact of the coronavirus disease 2019 (COVID-19) outbreak on the economy.

In a statement on Monday, the central bank said it was authorized by its policy-setting Monetary Board to purchase P300 billion in government securities from the Treasury through a repurchase agreement with a maximum repayment period of six months.

The BSP said funds generated from the bond-buying agreement will be used to support the government’s programs to counter COVID-19’s economic impact.

“We continue to support the government’s initiatives and objectives during the enhanced community quarantine (ECQ). This additional amount is intended to provide support for those most affected by the ECQ, especially in Luzon, for the next 60-90 days,” BSP Governor Benjamin E. Diokno was quoted as saying in the statement.

Meanwhile, National Treasurer Rosalia V. de Leon said in the statement that the arrangement “is the most cost-effective way for us to provide an extra lifeline to the national government to support the programs to fight this pandemic.”

Asked how the BTr will fund P300 billion in securities, Ms. De Leon told reporters in a Viber message: “Recall we have deferred income tax payments and we also expect other inflows e.g. when capital markets open and ODAs (official development assistance).”

Sought for comment, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said this move by the BSP will give an assurance to the financial markets.

“This provides stability for the financial system knowing that the central bank is behind efforts to combat COVID-19 on the supply-side and not just on the demand side,” Mr. Asuncion said in a text message.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said this bond-buying program is another form of easing from the central bank as it seeks to provide liquidity.

“This may also be a form of de-facto but temporary quantitative easing (QE) by the BSP to infuse liquidity through the national government for a maximum of six months,” Mr. Ricafort said in a text message.

ING Bank N.V.-Manila Senior Economist Nicholas Antonio T. Mapa said in a note to reporters the bond-buying scheme will “inject a fresh round of liquidity into the market and to keep a lid on interest rates in the process.”

He said this program may also help fund the government’s fiscal rescue package, which he hopes will include “income replacement, tax forbearance and liquidity or loan support.”

Mr. Mapa added that due to the disruptions caused by the virus, the central bank will likely keep its term deposit facility (TDF) closed “until further notice.”

“The TDF window had routinely siphoned off roughly P100 billion worth of liquidity, but given tightening liquidity conditions, most banks will likely not be able to access the deposit window,” he said. “We expect BSP to remain open to further easing via further rate cuts and possible reductions to the reserve requirements to keep businesses and individuals afloat during the ongoing COVID-19 episode.”

The BSP cut rates by 50 basis points (bps) last week in a move to cushion the economy against an expected slowdown in activity due to the outbreak.

This brought the overnight reverse repurchase, overnight lending and deposit rates to 3.25%, 3.75%, and 2.75%, respectively.

The latest cut follows the 25-bp reduction in February and the 75 bps slashed in 2019, meaning the BSP has cut rates by 150 bps since last year — almost unwinding completely the 175 bps in hikes implemented in 2018.

Meanwhile, the Economic Development Cluster earlier announced a P27.1-billion relief package where P14 billion will be allotted to support the tourism industry, while P3.1 billion will fund more test kits, among others.

Luzon, which has been placed under a month-long quarantine, comprises about 70% of the country’s gross domestic product.

The Health department said COVID-19 cases in the country rose to 462 as of Monday afternoon, with 33 deaths and 18 recoveries. — L.W.T. Noble