THE Philippine central bank is expected to pump more money into the financial system as low lending rates fail to stimulate an economy that has been put into a standstill by a novel coronavirus pandemic.
“Quantitative easing measures, through bond purchases and other tools by central banks are faster to implement and have immediate positive effects on the economy and financial markets,” said Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp.
They are unlike stimulus measures that may require more time through legislation, he said in an e-mailed reply to questions.
The Bangko Sentral ng Pilipinas (BSP) earlier went on a buying spree of three-month government securities worth $300-billion from the Bureau of the Treasury under a repurchase agreement payable in six months.
Both quantitative easing measures and policies are needed at a time of a pandemic, according to Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, Inc.
“With the magnitude of an impact such as a pandemic, all monetary and fiscal means should be on deck, and nothing should be left unused,” he said.
Quantitative easing would also help boost lending, apart from the liquidity boost and rate cuts enforced by the central bank, said Robert Dan J. Roces, chief economist at Security Bank Corp.
“The additional reserves would kick-start lending, causing broad money growth to expand, and eventually lead to an increase in real economic activity,” he said in an e-mail.
Meanwhile, BSP needs to come up with a bigger and stronger scope of response to ensure the economy is better cushioned from the impact of the COVID-19 pandemic, analysts said.
The economic effects of the pandemic could be worse than the 2008 global financial crisis, UnionBank’s Economic Research Unit said in a report, adding that the government needs to boost its response.
“By mere optics, the current crop of policies may have to be augmented further and a more targeted policy support is very much needed,” it said in an e-mailed note.
The share of exports, imports and tourist arrivals in the gross domestic product (GDP) last year rose to 59.3% (from 52.9%), 68.7% (from 50.1%), and 12.7% (from 5.9%), respectively from 2007, the bank said, citing government data.
On the other hand, the share of consumption and remittances in the economy fell to 68.4% (from 71.6%) and 8.5% (from 9.7%), respectively. In absolute amount, consumption almost doubled to P6.7 trillion last year from 2007, while remittances more than doubled to P30.1 billion
“Apart from the trade’s bigger part of the economy, tourism has more than doubled in terms of GDP contribution,” according to the report.
“Aggregate consumption, the biggest contributor to GDP, and remittance inflows have continuously supported economic growth for more than a decade,” it added.
“An estimated deeper impact of the COVID-19 pandemic on the bigger real macroeconomy, compared with the economic losses caused by the global financial crisis warrants wider and more encompassing policies,” it added.
The month-long lockdown in Luzon, which contributes 70% to GDP, is expected to slow the economy. Tourism, trade and remittances are also expected to suffer because of the outbreak.
Economic managers have estimated losses of P428.7 billion to P1.355 trillion in gross value added or about 2.1% to 6.6% of GDP. The government had targeted growth of 6.5-7.5% this year.
“If we are going to take their initial assessments seriously, then the response to this pandemic should be stronger and the scope bigger,” according to the report.
The central bank cut policy rates by 50 basis points this month and will buy P300 billion worth of securities from the Treasury bureau to help fund government initiatives related to the outbreak.
On Thursday, it remitted in advance P20 billion in dividends to the National Government to help it deal with the health crisis. — Luz Wendy T. Noble