THE aggressive policy easing fired off by the central bank this year will be “appropriate” as the economy faces challenges brought by the coronavirus disease 2019 (COVID-19) pandemic, according to Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno.

“With the manageable inflation environment and stable inflation expectations, we believe that the 125-basis-point (bp) cumulative cut in the policy rate this year is appropriate to buffer the country’s growth momentum and boost market confidence amid stronger headwinds,” Mr. Diokno said in an online briefing on Thursday.

The central bank already cut rates thrice this year — a 25-bp cut in February followed by 50-bp reductions in March and April.

This brought benchmark rates to record lows of 2.75% for the overnight reverse repurchase facility and 3.25% and 2.25% for the overnight lending and deposit facilities, respectively.

Mr. Diokno has said they will assess how banks have responded to their easing moves and regulatory relief measures for their next monetary policy assessment.

The next rate-setting meeting is scheduled on June 25 as the Monetary Board has called off its May 21 meeting following the off-cycle 50-bp cut on April 16.

Meanwhile, Mr. Diokno said the reduction in banks’ reserve requirement ratios (RRR) as well as the alternative modes of compliance with the RRR are meant to encourage lending to sectors affected by the pandemic, including the micro-, small- and medium-sized enterprises (MSMEs).

Asked how banks have used the liquidity boost coming from the cuts in policy rates and RRR, Mr. Diokno said: “Monetary policy works with a lag. Nothing will happen overnight.”

“There’s a lag of about three quarters as far as historical numbers show. But there’s some movement already,” he said.

“I think more money is going into GS (government securities), some money is going into lending. Let’s not get too impatient, I think we’ll get there,” he said.

This was echoed by BSP Monetary Policy Sub-sector Officer-In-Charge Dennis D. Lapid, who said the liquidity freed by the central bank’s easing “works in different channels.”

“[It’s] not just bank lending channels. There’s a lot more short-term liquidity in the market,” Mr. Lapid said.

Latest BSP data showed bank lending in February grew by 12.2%, quicker than the 11.2% logged in January.

The Monetary Board slashed the RRR of universal and commercial banks by 200 bps to 12% effective April in a bid to boost liquidity during the Luzon lockdown.

Meanwhile, the RRR of thrift and rural banks are at four and three percent, respectively. Liquidity boost for smaller banks came through the 400-bp reduction in the minimum liquidity ratio for stand-alone thrift and rural banks to 16% until end-2020.

Mr. Diokno added that his promise to reduce big banks’ RRR to the single-digit level may come “earlier” than his 2023 goal.

As the ongoing COVID-19 outbreak takes its toll on the economy, Mr. Diokno said the country’s ambition to get an “A” rating from debt watchers may have to be set aside for now as government efforts should be focused on people during this crisis.

“This pandemic hit the Philippines when we were on a roll. The road to ‘A’ might take a backseat at the moment,” the central bank chief said. “Our concern right now is to help our people rather than pursuing our Road to ‘A’.”

“We are going to borrow money. Fortunately for us, we start from a low debt-to-GDP (gross domestic product) ratio,” Mr. Diokno said.

“Achieving it (A rating) by 2022 may or may not happen. But as I said we are focused on appropriate policies and necessary reforms to put the economy back into its growth trajectory…,” he added.

The country’s debt-to-GDP ratio last year was revised to 39.6% using 2018 as the base year, after the indicator was initially at 41.5%. Economic managers have set a 46.7% debt-to-GDP target this year.

Ahead of the virus outbreak, the government was hoping to obtain an “A” sovereign rating from credit raters by 2022 as the country was expected to become an upper middle-income country by this year.

The Philippines’ sovereign credit ratings were upgraded to the minimum investment grade by S&P Global Ratings, Fitch Ratings and Moody’s Investors Service in 2013. Since then, the debt watchers have raised their ratings to a notch above minimum, putting the country closer to achieving an A-level grade. — Luz Wendy T. Noble