Thursday, April 16, 2020

Philippines cuts rate 50 bps in unscheduled move

     The Philippine central bank cut its policy rate by a further 50 basis points to 2.75 percent in an unscheduled policy decision, with its governor saying the move is "to strongly encourage lending to various sectors, especially to the most vulnerable, amid the COVID-19 pandemic."
      News of the rate cut by Bangko Sentral Ng Pilipinas (BSP) monetary board was announced by Governor Benjamin Diokno on social media and by text messages to reporters.
      BSP has been steadily cutting its policy rate since May 2019 and has now cut it six times since then by a total of 200 basis points. It is BSP's third rate cut this year following cuts in February and March, with this year's cuts totaling 125 basis points.
      The rate cut comes on the same day Philippine stocks tumbled 7.1 percent.
      BSP is the 62nd central bank to cut its rates at an emergency decision since the U.S. Federal Reserve cut its rate in a surprise move on March 3.
     Although BSP's rate cut was unscheduled and comes more than a month before the board's next scheduled meeting on May 21, it did not come as a surprise as it follows Diokno's statement on April 11 that BSP is ready to lower its rate to below a previous record low of 3 percent to support an economy reeling from a once in a lifetime crises.
     On April 5 Diokno was also reported to have said BSP has a lot of room to cut its interest rates as it is faced to a real risk of recession due to the coronavirus pandemic.
      Diokno, who has a history of foreshadowing policy decisions before they are taken by the bank's board, was also reported to have said on April 11 that another 2 percentage point cut in the bank's reserve requirement ratio was forthcoming.
      BSP already cut its reserve requirement by 200 basis points to 12.0 percent in a special meeting by its monetary board on March 24. The board also authorized cuts of up to 400 basis points this year, giving Diokno the authority to determine the timing and extent of the cuts to address any strains in financial markets.
     In 2019 BSP cut its reserve requirements by 500 basis points and Diokno has said he is aiming to lower the ratio to a single digit by 2023.
     In addition to cuts to its interest rates and reserve requirements, BSP' last month launched a 300 billion peso government bond buying program, with funds used to support the government's efforts to counter the impact of the virus.
     Under the agreement, the Philippine treasury will repay the funds in less than 6 months.


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