THE CENTRAL BANK may cut rates by more than 25 basis points (bps) this year as the government looks to boost growth amid fears of an economic fallout due to the global spread of the coronavirus disease 2019 (COVID-19), its chief said on Thursday.
In a briefing at the central bank’s headquarters, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said they will reassess how the virus could hit the economy as the outbreak worsens, with more cases confirmed outside China.
“I’m not totally ruling out an additional cut of more than 25 bps this year. Definitely there will be another 25[-bp cut]. I’m not ruling out [a cut worth] 50 or 75 bps,” Mr. Diokno told reporters.
He, however, said he remains positive the economy will expand by six percent this year despite emerging risks.
“We are still confident that we will still hit six percent [growth]…” he said. “So there are many things that we should do while the whole world is in a mess…so that when all of these settle down, we’ll be in a stronger position again.”
The government targets 6.5-7.5% gross domestic product (GDP) growth for the year. The economy grew by 5.9% in 2019, a tad below the downward-revised goal of 6-6.5%.
The Monetary Board on Feb. 6 trimmed key policy rates by 25 bps, bringing the rate on the BSP’s reverse repurchase, overnight deposit and lending facilities to 3.75%, 3.25% and 4.25%, respectively.
Mr. Diokno said earlier this month that the central bank may cut rates by another 25 bps as early as the second quarter to help shield the economy from the impact of the fast-spreading COVID-19.
The central bank last year reduced key rates by a total of 75 bps. This partially unwound the 175 bps worth of hikes it implemented in 2018 to quell rising inflation.
“We’re lucky that we have both fiscal and monetary space,” Mr. Diokno said. “We might consider additional cuts in reserve requirements or in the…policy rate, but when that will happen, of course that will depend on our assessment of the situation and the conditions.”
The reserve requirement ratio (RRR) for big banks is currently at 14%, while those for thrift and rural lenders are at four percent and three percent, respectively, following 400 bps worth of cuts last year.
The BSP chief has vowed to reduce big banks’ RRR to the single-digit level by the end of his term in mid-2023.
Mr. Diokno earlier said COVID-19 could result in a 0.2% reduction in GDP growth if the virus lasts for a quarter or 0.4% if it persists for two quarters. He said growth may be hit by 0.3% on average in the first semester based on their preliminary analysis.
With the virus already affecting more than 80,000 people around the world, disrupting business operations in some countries and causing market jitters, Mr. Diokno said he has already instructed BSP Deputy Governor Francisco G. Dakila, Jr. to “revisit” these estimates.
Mr. Diokno said their previous analysis took into consideration the case of the Severe Acute Respiratory Syndrome (SARS) epidemic back in 2003. However, he said that China then is “much different from China now.”
“China now accounts for, I think, at least 30% of global growth if not higher,” he said.
BSP Monetary Policy Sub-sector Officer-In-Charge Dennis D. Lapid said in reviewing their analysis of the outbreak’s impact on the economy, they will consider data such as foreign direct and portfolio investments.
“Even with…what’s happening, we’re confident that we’ll still hit six percent this year. Because most of the things that we plan to do are not heavily affected by the coronavirus, like the ‘Build, Build, Build,’” Mr. Lapid, referring to the government’s massive infrastructure program. — Luz Wendy T. Noble