THE CURRENT policy stance of the Bangko Sentral ng Pilipinas (BSP) will remain appropriate once the modified enhanced community quarantine (MECQ) is transitioned to a general community quarantine (GCQ), according to BSP Governor Benjamin E. Diokno.

Sought for comment on whether the policy measures implemented by the BSP will still be relevant once GCQ is imposed in Metro Manila, Mr. Diokno said in a text message: “Absolutely.”

Mr. Diokno said among the factors they will consider at the Monetary Board’s next policy-setting meeting scheduled on June 25 include May inflation data as well as the first-quarter gross domestic product (GDP) report.

Headline inflation stood at 2.2% in April, marking the third consecutive month of a slower rise in prices of commodities. Last month’s decline was on the back of lower oil prices and other non-food items.

May inflation data will be reported by the Philippine Statistics Authority on June 5.

Meanwhile, first-quarter GDP dropped by 0.2%, the first contraction since the three percent fall recorded in the fourth quarter of 1998. Economic managers now expect the economy to shrink by 2-3.4% on expectations of a worse fallout due to the pandemic.

“We’ll also look at some high frequency indicators, in both the supply and demand sides of the economy, which could suggest how the economy is shaping up,” Mr. Diokno said.

These data would include the purchasing managers’ index, export and import numbers and the number of flights and passengers, which will be used to gauge if there will be a pickup in transport and tourism when the lockdown is lifted.

As for government data, Mr. Diokno said they will look at disbursements as an indicator for government consumption and public capital formation.

The Metro Manila Council of city mayors will meet on Wednesday to assess whether the National Capital Region can already be transitioned to GCQ. The body’s chairman and Parañaque Mayor Edwin L. Olivarez earlier said he will endorse to place Metro Manila under GCQ starting June as the economic impact of the pandemic on the region has been “horrible and horrifying.”

The BSP has slashed rates by a total of 125 basis points (bps) this year after the 75 bps worth of easing done in 2019. This means the central bank has already reversed the 175 bps in rate hikes implemented in 2018.

Benchmark rates are currently at record lows, with the overnight reverse repurchase rate at 2.75% and the overnight deposit and lending rates at 2.25% and 3.25%, respectively.

Meanwhile, the reserve requirement ratio (RRR) of universal and commercial banks was reduced by 200 bps to 12% in April. The RRR of thrift and rural banks are at four percent and three percent, respectively. The central bank has also reduced minimum liquidity ratio of standalone smaller lenders by 400 bps to 16% until yearend.

The Monetary Board has authorized Mr. Diokno to cut banks’ RRR by a total of 400 bps this year to boost liquidity amid the pandemic situation.

EASING THE LOCKDOWN
A rate cut could still be possible depending on how things move forward after the GCQ is imposed, said ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa.

“We’ve penciled in a 25 bps policy rate cut at the June meeting as BSP looks to give an added boost to economic activity once GCQ begins,” ING Bank’s Mr. Mapa said in an e-mail.

Mitzie Irene P. Conchada, an economist at De La Salle University, meanwhile, said the central bank is likely to hold rates “for the meantime until there are developments in economic indicators after the GCQ.”

She said the decision on whether to transition to GCQ is a tough one as the outbreak hasn’t been contained.

“It’s a dilemma between keeping the coronavirus figures at bay and at the same time jump-start the economy after two months of depressed economic activity for most industries,” Ms. Conchada said.

“I also think the government would want to keep small industries a chance to catch up and maybe assess what they can do with their business in the new normal,” she added.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said a policy rate cut could be “warranted” if the BSP’s expectation of subdued inflation is seen in the May data. He, however, noted that there was an uptick in inflation for the bottom 30% in April as well as in the prices of rice and fuel.

“All these factors taken together seem to put an upward pressure on headline inflation and more data would be needed. The additional cut may have to be postponed if inflation may not actually be subdued as expected,” Mr. Asuncion said in an e-mail.

Easing lockdown measures may result in an uptick in inflation, he said.

“More movement or production of goods and services contributes to the rise of price levels in the economy. These are known drivers that have to be taken into consideration by the BSP on future monetary policy moves,” Mr. Asuncion said. — Luz Wendy T. Noble

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