BSP ready to cut interest rates

If effects of China virus outbreak grow worse – Diokno

THE country’s monetary authorities are ready to cut the central bank’s key policy rates if the negative impact of the coronavirus disease 2019 (Covid-19) outbreak on the economy worsens, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said on Thursday.

During a press chat at the central bank’s headquarters in Manila, Diokno said the BSP would revisit its initial estimates on the country’s economic loss from the Covid-19 outbreak to take account of new developments.

He earlier warned that the outbreak could slow down Philippine gross domestic product (GDP) growth by 0.3 percent if the virus lasts until the first half of the year.

“I gave an instruction… to revisit the estimates. We are not finished yet, but we made considerations that while the deadliness of the virus is less than the SARS (severe acute respiratory syndrome), this can have more reach, because it has grown so fast,” Diokno said, referring to the respiratory disease that broke out in China and spread across the globe in 2003.

Asked for implications to monetary policy if the outbreak escalates, the Bangkok Sentral chief assured that the central bank still had a lot of room ease its monetary policy this year.

Diokno recalled that he committed a 50-basis-point (bps) easing in interest rates this year, with the first 25 bps cut implemented on February 6. This brought overnight borrowing, lending and deposit rates to 3.75 percent, 4.25 percent and 3.25 percent.

“We have a lot of monetary space and fiscal space, so if things deteriorate much beyond what we have originally forecast, we might consider additional cuts in reserve requirement or in the interest rate or policy rate,” the Bangko Sentral governor said.

“But when that will happen? Of course, that will depend on our assessment of the situation and the conditions,” he added.

That said, Diokno said he “is not totally ruling out an additional cut of more than 25 bps this year.”

“Definitely there will be another 25. I’m not ruling out 50 bps or 75 bps,” he added.

The BSP chief is also confident that the Philippines would ride out the effects of the virus to the economy, given the government’s plan to further increase infrastructure spending.

“Even with this what’s happening, we are confident that we are still (going to) hit 6-percent (GDP growth) this year. Because most of the things that we plan to do are not heavily affected by the coronavirus, like Build Build Build,” he said, referring to the government’s ambitious infrastructure program.

“There are many things that we should do while the whole world is in a mess. We have a lot of homework to do, so that when all of these settle down, we’ll be in a stronger position again,” he added.

First emerging in the city of Wuhan in China’s central Hubei province in December, Covid 19 has spread to more than two dozen countries. It has killed more than 2,900 people — including one, a Chinese tourist, in the Philippines earlier this month — and infected over 81,000 others, according to latest reports.