BSP boosts liquidity to support COVID-19 response

The Bangko Sentral ng Pilipinas (BSP) is implementing extraordinary measures to boost domestic liquidity and support the national government's response to the COVID-19 pandemic.

Starting April 8, the BSP expanded its purchases of peso-denominated government securities (GS) from banks, initially select series and later all issuances, to ensure market demand and encourage participation in GS auctions.

This initiative to buy GS will continue until June 2020 or until market conditions normalize.

The BSP also reduced its overnight reverse repurchase (RRP) facility offering to encourage lending in the interbank market or channeling funds to other assets like GS or loans.

These actions are in addition to a PHP300-billion repurchase agreement with the national government, where the BSP buys three-month GS from the Bureau of the Treasury to fund COVID-19 response programs.

The BSP acknowledges the global economic impact and financial market turbulence caused by the pandemic and aims to shore up market confidence.

The central bank believes the Philippine financial system remains sound but recognizes the need for these extraordinary measures to prevent serious repercussions on the economy.

These measures intend to ensure sufficient liquidity for financial intermediaries to meet the needs of Filipino households and businesses.

BSP Governor Benjamin Diokno noted that the repurchase agreement with the national government could be increased to PHP500 billion if necessary.

Other measures already in place include a total of 75 basis points cut in key policy rates and a 200 basis points reduction in the reserve requirement ratio for universal and commercial banks.