AN off-cycle monetary response ahead of the Monetary Board’s next policy-setting meeting could be on the table soon to cushion the economy from the coronavirus disease 2019 (COVID-19) outbreak, according to Nomura Global Markets Research.

The Japanese research house said the Philippines has fallen behind its neighbors in fiscal measures to the pandemic.

“We reiterate our forecast for an additional 75 bp of policy rate cuts by BSP (Bangko Sentral ng Pilipinas) to 2.5%, all delivered in Q2, starting with a 50 bp (basis point) cut possibly well ahead of the next scheduled meeting on 21 May,” Nomura said in a note issued Monday.

BSP Governor Benjamin E. Diokno said Sunday that the central bank may decide to make a “deeper cut” that will bring down rates to below 3% in response to a “once-in-a-lifetime crisis” caused by the pandemic and to also ensure “a safe landing” for the economy post-outbreak.

“A deeper cut is warranted in response to the expected sharp economic slowdown,” Mr. Diokno told reporters in a text message.

The central bank cut rates by 50 bps on March 19 to curtail the impact on the economy of the pandemic and the lockdown.

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

Since 2019, key policy rates have been reduced by a combined 150 bps, almost completely unwinding the 175 bps worth of rate increases in 2018 when inflation was surging.

Meanwhile, the reserve requirement ratio of big banks was lowered by 200 basis points to 12% last week to increase liquidity during the lockdown. The Monetary Board said it will also review bringing down the RRR for thrift and rural banks, which have been maintained at 4% and 3%, respectively.

“With discussions within government of a supplementary budget still limited, the Philippines appears to be lagging regional peers on urgently needed fiscal measures, so monetary policy will likely provide an immediate response,” Nomura Global said.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion is also pricing in the possibility of an off-cycle response as the situation is “unprecedented.”

“An off-cycle cut would be helpful for the financial sector and markets so that they can take advantage and prepare for economic losses. More RRR cuts will also be appropriate as the BSP does ‘whatever it takes’ to help the broader economy,” he said in an e-mail.

Mr. Asuncion said the current situation could escalate into a “financial crisis that would have a deeper impact in the long run” if not enough measures are carried out.

ING Bank-NV Manila Senior Economist Nicholas Antonio T. Mapa noted that the BSP seems to be taking the dovish lead from the Federal Reserve during the pandemic. However, he warned that easing the lockdown will remain key to resuming economic activity.

“Central banks can lend and lend but at the end of the day, someone will need to spend for the economic engines to turn. With households quarantined at home, the ball is in the court of the national government,” Mr. Mapa said in an e-mail.

Since March 15, the lockdown has been imposed on Luzon, which accounts for 70% of Philippine gross domestic product.

The enhanced community quarantine (ECQ) has been extended until April 30, further lengthening the closure of many businesses.

“In this time of COVID-19, monetary policy will rely less on actual economic data to make policy-driven decisions given the dire need to support the economy,” Mr. Mapa said.

“BSP can take its cue from extremely moribund growth scenarios proposed by the DoF (Department of Finance) to cut rates further and survey banks to gauge how tight liquidity is,” he added.

Finance Secretary Carlos G. Dominguez III said last week that economic growth could be flat or could even contract by as much as 1% due to the freeze in economic activity during the ECQ.

Mr. Dominguez’s worst-case scenario is weaker than the -0.6% to 4.3% estimate issued by the National Economic and Development Authority (NEDA) prior to the extension of the lockdown and much lower than the 5.9% growth posted in 2019 and the 6.5% to 7.5% original target set by the government before the outbreak started. — Luz Wendy T. Noble

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