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BSP policy stance to stay accommodative

THE CENTRAL BANK has room to remain accommodative if there is further need to support the economy towards recovery, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Francisco G. Dakila, Jr. said.

“For the foreseeable future, while there’s this impact of the pandemic that’s dampening of economic activity, then you can expect that the policy stance will remain accommodative over the near-term. There’s a lot of available policy space should there be the need to act,” Mr. Dakila said at the BusinessWorld Virtual Economic Forum on Thursday.

The official said the country entered the crisis in a “position of strength” and “nowhere close to the zero lower bound,” giving it ample space to respond when the need came.

So far, the BSP has already slashed benchmark interest rates by 200 basis points (bps) this year to provide economic stimulus during the pandemic, with the latest 25-bp cut fired off last week. This brought down rates on the BSP’s overnight reverse repurchase, lending, and deposit facilities to record lows of 2%, 2.5%, and 1.5%, respectively.

Mr. Dakila said rate cuts act as an additional “impetus” for the market, but he noted that the  virus will continue to affect investor confidence.

He said following the central bank’s easing, average bank lending rates slipped to 8.37% in June from 8.5% in March.

Despite this, credit growth stood eased to 2.8% in September, the slowest pace since the 2.4% in June 2007, as lenders tightened their credit standards while borrowers’ confidence remained low.

“Once that confidence builds in, then we can expect economic activity to pick up,” Mr. Dakila said.

Moving forward, Mr. Dakila said BSP’s policy actions will remain data-dependent.

“The [Monetary] Board looks first and foremost at the inflation outlook — whether there’s any threat to the attainment of our inflation outlook over the policy horizon,” he said, but noted inflation is “not really a major concern at this stage.”

Headline inflation stood at 2.5% in October, quicker than the 2.3% logged in the previous month but still within the 2-4% target of the central bank.

The BSP last week revised its inflation forecast for this year to 2.4% from 2.3% previously. For 2021 and 2022, the central bank expects slightly lower average inflation of 2.7% (from 2.8%) and 2.9% (from 3%), respectively.

Mr. Dakila added they can still accommodate another cut in banks’ reserve requirement ratio (RRR). For this year thus far, the BSP has slashed the RRR of big banks by 200 bps to 12% while reserve ratios of thrift and rural banks were cut by 100 bps to three percent and two percent, respectively.

“It (further RRR cuts) will not necessarily be because of the pandemic, I think, but as the BSP governor had said, he wants to lower the reserve requirements to single-digit levels by the end of his term. So, this is part of a structural reform program where you want to shift away from the instruments such as the reserve requirements to more market-based instruments for the conduct of monetary policy,” Mr. Dakila said. — L.W.T. Noble

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