Philippines: BSP ramped up stimulus – UOB

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting assessed the recent decision by the Bangko Sentral ng Pilipinas (BSP) to reduce the reserve requirement ratio (RRR) by 200 bps.

Key Quotes

“Bangko Sentral ng Pilipinas (BSP) announced… that the reserve requirement ratio (RRR) for universal and commercial banks will be reduced by 200bps effective 30 Mar, becoming the second central bank in the region after Bank Negara Malaysia did a similar move this month. It is expected to release about PHP180bn-200bn worth of liquidity into the financial system.”

“[The] announcement of RRR cut also comes a day after the BSP announced a plan to buy PHP300bn (USD5.9bn) worth of government securities under a repurchase agreement with a maximum repayment period of six months. Funds raised from the said agreement will be used to support the national government’s programs to counter the impact of COVID-19. The Philippine government had on 16 Mar unveiled a fiscal stimulus package amounting to PHP27.1bn or 0.1% of GDP to fight the COVID-19 pandemic and mitigate economic losses.”

“We expect another 200bps cut in RRR to materialise within the year should the COVID-19 outbreak extend beyond Jun and the global economy enters recession.”

“For the overnight reverse repurchase (RRP) rate, we expect another 50bps cut in 2Q20… bringing the RRP rate to a new low of 2.75% by the end of 2020. A day after the MPC meeting, the central bank revised down its 2020 growth forecast to 5.0%-5.5% (from 6.5%-7.5% previously) and signalled that any further deterioration from this revised growth forecast could trigger further rate cuts. Other monetary supplementary measures are also expected to be announced over the coming weeks as an urgent initiative to address the adverse impact of COVID-19 on the economy and financial markets, in addition to fiscal stimulus measures.”