Liquidity measures intact for now — BSP

THE Bangko Sentral ng Pilipinas (BSP) will not stop liquidity measures until the economy has recovered, BSP Governor Benjamin E. Diokno said on Monday.

“We don’t have plans of stopping or taking away the liquidity measures that we have released until such time that the economy has recovered,” he said in an interview with ANC on Monday.

Mr. Diokno earlier said around P2 trillion in liquidity was infused into the financial system through the central bank’s easing measures during the pandemic. This is equivalent to about 10% of the economy.

“That [liquidity infusion] has yet to be absorbed by the market, so that remains to be on the table,” Mr. Diokno said, noting banks’ risk aversion as well as the lack of consumer and investor confidence.

Last year, the BSP slashed the reserve requirement ratio of big banks by 200 basis points (bps) to 12%. Meanwhile, thrift and rural lenders saw their reserve requirements reduced by 100 bps to 3% and 2%, respectively. The central bank also allowed credit to small businesses to be counted as alternate reserve compliance to encourage lending to the sector.

Despite the liquidity boost, bank lending continued to slump. Latest BSP data showed outstanding loans by big banks slipped 2.4% in January, reflecting signs of risk aversion by banks that are concerned about asset quality and profitability.

Meanwhile, the consumer price index rose 4.7% in February, the second successive month it went beyond the BSP’s 2-4% target range. This was attributed to higher prices of staple food items such as meat, fish, and even rice.

The BSP expects average inflation this year to reach 4% before slowing to 2.7% in 2022.

“We still have lots of tools but I think it’s not appropriate to talk about it at this time because as I said, the P2-trillion monetary stimulus that we’ve deployed is yet to be digested by the financial system and is still relevant,” Mr. Diokno said.

“Because once the economy opens up, and once the consumer and investor confidence returns, then they can actually use this stimulus which is still in the financial system.”

The Monetary Board will have its next rate-setting meeting on March 25 where it will also reassess inflation expectations.

Mr. Diokno said the upward trend in inflation may continue in the coming months, before tapering off by the second half.

The BSP maintained its key policy rates untouched at 2% on Feb. 11, signaling it will remain accommodative to support recovery. Last year, it slashed rates by 200 bps amid the crisis.

On the economy, Mr. Diokno said the first-quarter gross domestic product (GDP) is still expected to be “a bit slow” or “slightly negative.”

“But in the second quarter, there will be a strong rebound based simply on the base effects. As you know that was the poorest quarter last year, and then it will normalize,” he said.

Asian Institute of Management economist John Paolo R. Rivera welcomed the BSP’s signal to keep liquidity measures intact.

“I agree with the BSP’s move to continue with their liquidity measures. But for it to be absorbed by the market faster, an effective demand-side intervention may be necessary. However, this is beyond the mandate of the monetary authority. It rests on the fiscal sector. Hence, a policy mix may be warranted,” Mr. Rivera said in a text message.     

Mr. Rivera said demand-side support could come in forms of cash or food aid.

He said the central bank’s monetary relief measures are more directed to businesses, but may not necessarily translate to increased demand from consumers.

“Yes, businesses will have fuel to operate but nobody will come in because consumers are also experiencing liquidity constraint. Hence, it’s a vicious cycle — businesses will need more liquidity support to be financially viable since there are no customers,” he said. — Luz Wendy T. Noble