THE central bank has ample space to further cut interest rates, as it seeks to shield the economy from the coronavirus disease 2019 (COVID-19) fallout. 

Amid a “real risk” of a technical recession, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said that there is a “a lot of room for cutting interest rates and also a lot of room in cutting the reserve requirement.”

“Our decision will be dependent on what the actual inflation is, the inflation outlook for the next three quarters and what’s happening in the world economy,” he told ABS-CBN News Channel on Sunday. 

A BusinessWorld poll of 11 economists held last week yielded a 2.3% median estimate for March headline inflation, closer to the lower end of the BSP’s 2-2.8% estimate. 

The Philippine Statistics Authority will report March inflation data on Tuesday (April 7). 

“There’s a downward trend [in inflation]. So how much can we cut? We have a lot of policy space. As you know, the interest rate was increased by 175 basis points (bps)  in 2018 and we have only cut it so far 1.5%… So we can still have room for cutting,” Mr. Diokno said. 

Last year, the central bank cut rates by a total of 75 bps. This was followed by another 75 bps worth of easing this year through the 25 bps cut in February and another 50 bps cut done in March.

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

Meanwhile, the reserve requirement ratio (RRR) of universal lenders has been effectively reduced by 200 bps on Friday to 12% to give the financial market a liquidity boost amid the enhanced community quarantine (ECQ) currently imposed in Luzon. 

For now, RRR of thrift, rural, and quasi-banks are maintained at four percent, three percent, and 14%, although the BSP said that they will also evaluate on bringing down RRR for the said financial institutions.

The Monetary Board has also authorized Mr. Diokno to bring down RRR by a total of 400 bps for the whole of 2020. 

In 2019, the BSP slashed lenders’ reserve requirement by 400 bps in a bid to bring down its level closer to its regional counterparts before Mr. Diokno’s term ends in mid-2023.

RECESSION RISK

The BSP chief acknowledged the headwinds the economy might face given the looming risk of a technical recession which is defined as two consecutive quarters of negative growth.

“There’s a real risk that there will be a technical recession…I think Q2 and Q3 we might have negative growth…I think we can restart the economy in May so even Q3 may not be negative,” Mr. Diokno said.

Amid the pandemic and the Luzon quarantine, the National Economic and Development Authority said that gross domestic product (GDP) growth could settle between -0.6% to 4.3% in 2020, a major downgrade from the 6.5 to 7.5% growth target set by the government before the outbreak.

In 2019, growth settled at a below-target growth of 5.9%.

“We’re confident that the economy can take the adjustments,” Mr. Diokno said, noting that the country had 84 quarters of continuous growth in the past despite the Asian financial crisis and the global financial crisis.  

“We have gross international reserves (GIR) equivalent to almost eight months of import, our peso is fairly steady so we don’t have any foreign exchange problems as our neighbors,” he said. 

As of end-February, GIR stood at $87.606 billion, going beyond both the January level of $86.868 billion and the $82.78 billion traced in February 2019, according to BSP data.

Meanwhile, the peso has relatively recovered compared to its level at the onset of the Luzon ECQ. On Friday, it closed at P50.72 against the greenback, stronger from its P50.85 dollar close on Thursday as well as its flat P51 finish level a week ago.

“Really our concern is the public health issue and then we’ll take care, Secretary of Finance [Carlos G.] Dominguez [III]  and myself will take care of the economy and also [Socioeconomic Planning] Secretary Ernesto M. Pernia,” Mr. Diokno said.

COVID-19 cases in the country rose by 76 on Saturday, its lowest pace of daily growth rate in a week, bringing the total to 3,094 cases, according to health officials. Meanwhile, COVID-19 has already claimed 144 lives while 57 recoveries have been recorded. — Luz Wendy T. Noble

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