BSP to cut key policy rate below 3% amid crisis

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno indicated readiness to lower the key policy rate below 3% to mitigate the economic impact of the "once in a lifetime crisis."

Diokno stated that reverting to the 2018 policy rate of 3.0% is no longer a suitable objective, and a deeper cut is necessary due to the anticipated sharp economic slowdown.

The BSP is also preparing for another 2 percentage point reduction in the reserve requirement ratio for banks.

This year, the BSP has already reduced its key rate by 75 basis points to 3.25% and decreased the reserve ratio by 200 basis points to aid the government's economic stabilization efforts.

The central bank has provided significant financial support, including purchasing government debt and establishing a facility for secondary market securities, totaling approximately ₧830 billion.

These actions by the BSP represent a substantial portion of the government's ₧1.17 trillion war chest against the coronavirus.

Economic projections suggest that the Philippines' gross domestic product could contract by up to 1%, marking the first shrinkage in over two decades.

Governor Diokno anticipates that inflation will likely remain at the lower end of the 2%-4% target range for the year.

The BSP will continue to base its decisions on incoming data, acknowledging the time lag in monetary policy effectiveness, and is open to an unscheduled rate adjustment.

Diokno emphasized the need for bolder but appropriate actions from the BSP to cushion the economic slowdown's effects and ensure a swift economic recovery once the pandemic subsides, in coordination with fiscal authorities.