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PH policy responses appropriate – IMF

By Lee C. Chipongian

The central bank’s monetary policy response as economic stimulus remains appropriate, according to the International Monetary Fund (IMF).

“We think policy responses by the government and the BSP (Bangko Sentral ng Pilipinas) are appropriate,” said Yongzheng Yang, IMF resident representative to the Philippines, in an email.

The Monetary Board, BSP’s policy-making arm, cut interest rates anew last Thursday by 50 basis points (bps) in a move that apparently surprised the market. The BSP has reduced the policy rate by a cumulative 175 bps since February. The current 2.25 percent overnight reverse repurchase (RRP) is the lowest RRP rate in the history of the central bank.

“Monetary policy responses have been swift, with cuts on the interest rate and banks’ reserve requirements,” said Yang. The BSP has reduced reserve requirement ratio (RRR) by 200 bps this year, while in 2019, the RRR was down by 400 bps.

As for fiscal measures, Yang said these have “rightly targeted the health sector, the vulnerable people, and affected businesses.”

“To protect the recent progress on poverty reduction, social protection programs should be strengthened as current temporary income support measures are phased out. Moreover, speedy policy implementation will be crucial to mitigate the scarring effects of COVID-19 on the economy,” he said.

Yang said the IMF has changed its April GDP projections for the Philippines, from 0.6 percent two months ago to -3.6 percent for 2020, consistent with all other forecasts for the country. For 2021, it has kept its previous 6.8 percent projection for the GDP.

According to Yang, the revisions to forecasts are due to the “larger-than-expected” COVID-19 supply disruptions, the “weaker demand in major trading partners” and the government’s more gradual resolution to the pandemic problem.

The IMF in its latest World Economic Outlook report has again downgraded the global outlook which also meant that the “external environment for the Philippines has also worsened, posing additional headwinds to growth this year,” said Yang. The IMF projects the global economy will contract by 4.9 percent this year.

In the meantime, the BSP’s latest policy rate cut is aimed at providing another round of stimulus with economy bracing for recession, said ING Bank senior economist, Nicholas Mapa.

He said the Philippines will probably be in recession by the second quarter. ING’s GDP projection is -5.8 percent in the second quarter from 0.2 percent in the first three months. “Official projections for growth point to a worst-case scenario of -3.4 percent for 2020 while several multilateral agencies recently downgraded forecast as well,” he said.

Mapa said the BSP cut the rates anew as it braces for a recession but it could be the last Monetary Board policy rates reduction for the year. “After the flurry of rate cuts and infusion of liquidity, (the) move may be the last from the BSP in 2020 with Diokno likely in favor of approximating positive real policy rates,” he said.

He also expects the end of RRR cuts. “Diokno will likely hold back on reducing reserve requirements in the near term given that the financial system is swamped with liquidity with excess funds parked at BSP’s deposit facilities hitting roughly P1.3 trillion in June.”

Source: Manila Bulletin (

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