Benjamin E Diokno: The Bangko Sentral ng Pilipina's response to
the Covid-19 pandemic
Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central
bank of the Philippines), at an investor call with Standard Chartered Bank, Manila, 22 April 2020.
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Good day, everyone. Thank you for the opportunity to share the central bank's views on the
macroeconomic developments and prospects for the Philippine economy amidst the ongoing
pandemic.
As aptly explained by Finance Secretary Dominguez, the Philippines was on a positive rating
trajectory before the global health crisis started. Its strong track record of prudent policymaking
has led to robust external balance sheet, healthy public finances, and positive macroeconomic
performance seen in recent years. The country's strong fundamentals has provided a degree of
resilience during the current pandemic shock.
The Development Budget Coordination Committee estimates real GDP growth would be flat or
would contract slightly in 2020, incorporating the adverse effects of COVID-19 on the supply and
demand sides of the economy. However, domestic activities are expected to resume once
containment measures are lifted and a full recovery is expected in 2021.
The extension of the enhanced community quarantine measures until April 30 will have a
negative impact on domestic economic activity. Likewise, the spillovers from slower global
growth, tourism, foreign investments, trade, and overseas Filipino (OF) remittances are expected
to further worsen domestic growth.
All in all, the BSP expects a U-shaped recovery with growth accelerating once the community
quarantine is lifted and the necessary measures intended to stem the spread of the virus are fully
implemented. GDP could also recover more strongly once the fiscal and monetary stimulus gain
traction and workers and firms resume operations.
The BSP has undertaken an aggressive monetary policy response to address the adverse
spillovers associated with the ongoing pandemic. With a manageable inflation environment and
stable inflation expectations, the Monetary Board sees enough policy space for an assertive
reduction in the policy rate to cushion the country's growth momentum and uplift market
confidence amid stronger headwinds. The monetary policy easing is also aimed at ensuring
adequate domestic liquidity and credit in the financial system as well as lowering borrowing costs
for affected firms and households.
Following the implementation of liquidity-provision measures by the BSP, domestic liquidity has
improved in recent weeks as shown by oversubscriptions in the latest T-bill and T-bond auctions
of the BTr on 13 and 14 April, respectively, as well as in the term deposit facility (TDF) auction on
15 April. At the same time, the infusion of funds has resulted in lower weighted average interest
rates (WAIR) in the interbank market. Moreover, GS purchases by the BSP in the secondary
market helped improve GS market activity. To date, BSP has purchased a total of P62B worth of
GS from the secondary market.
The BSP is prepared to use the full range of its monetary instruments and to deploy monetary
policy and regulatory relief measures as needed in fulfilment of its price and financial stability
objectives.
The Monetary Board has already approved the granting of temporary regulatory and
rediscounting relief measures to BSP Supervised Financial Institutions (BSFIs). (MB Resolution
No. 397 dated 13 March 2020)
The BSP recognizes that the outbreak of COVID-19 has potential significant impact on the
operations of BSFIs in terms of risks related to exposures to borrowers and/or industries or
businesses severely disrupted or affected by the COVID-19 as well as disruption in operations
due to measures implemented to control the spread of virus such as the lockdown situation,
localized work suspension, and heightened health and safety risks faced by BSFIs' employees
and customers.
Moreover, the BSP has implemented extraordinary liquidity measures to complement the
National Government's broad-based health and fiscal programs in mitigating the impact of
COVID-19. These measures include the ₱300 billion repurchase agreement with the BTr as well
as launching a package of measures to support lending to micro, small, and medium
enterprises. Loans granted to MSMEs shall be counted as part of banks' compliance with
reserve requirements.
At the same time, the BSP continues to monitor the developments arising from the pandemic. In
calibrating its monetary policy settings, the BSP will continue to be data-dependent, guided by its
assessment of the inflation outlook over the policy horizon and the risks surrounding such
outlook as well as data on demand conditions.
The BSP has responded swiftly and decisively to mitigate economic and financial fall-out form
the COVID-19 pandemic through its monetary instruments and regulatory relief measures.
Moreover, evidence suggests that the BSP's liquidity-provision measures have improved system
liquidity in the past weeks and stabilized broad funding conditions.
However, risks to the growth outlook continue to be tilted to the downside and currently a
Ushaped recovery is expected. The challenge, therefore, is to provide tangible boost to the
economy through the appropriate combination of fiscal response and monetary measures.
Rest assured, macroeconomic policy measures are in place to address downside risks
associated with the COVID-19 pandemic. In line with this, the BSP will continue to work with
market participants and relevant government agencies to ensure that its policy responses remain
timely and appropriate particularly during these challenging times.
Thank you.