Philippines: Further easing by the BSP is not ruled out – UOB

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting reviewed last week’s decision by the central bank of Philippines (BSP) to reduce the reverse repurchase rate (RRP) to 2.75%.

Key Quotes

“At its unscheduled Monetary Board (MB) meeting (16 Apr), Bangko Sentral ng Pilipinas (BSP) cut its overnight reverse repurchase (RRP) rate by 50bps to a new low of 2.75%. Accordingly, both the overnight lending and deposit rates were also reduced to 3.25% and 2.25% respectively.”

“The central bank cited the decision as a pre-emptive, appropriate and warranted move given that “monetary policy works with a lag” and the COVID-19 outbreak continues to worsen globally.”

“At the same time, the MB also approved a package of measures to further reduce the financial burden on loans to micro-, small-, and medium-scale enterprises (MSMEs).”

“Year-to-date, BSP has cumulatively reduced its RRP rate by 125bps and reserve requirement ratio (RRR) by 200bps, as well as planned to buy PHP300bn worth of government securities under a repurchase agreement… We expect BSP to deploy other non-RRP monetary instruments and regulatory relief measures to further support the needs of households and businesses over the next few weeks.”

“While another 200bps cut in reserve requirement ratio (RRR) remains on the table within the year, all unveiled initiatives including health and fiscal measures are deemed enough for now to mitigate the adverse impact of the outbreak on the economy, quicken economic recovery when the pandemic starts to fade by May-Jun, and stabilise financial market conditions. Overall, unless the COVID-19 pandemic prolongs as well as global financial and liquidity conditions worsen, we believe that BSP will maintain its RRP rate at 2.75% and RRR at 10.0% for the rest of the year.”