Write off economic recovery this year; it’s not going to happen.
Monetary officials forecast a rebound of the Philippine economy from the impact of the coronavirus disease 2019 by next year.
The Bangko Sentral said its policy-making Monetary Board continues to see the services sector like the tourism, trade, and remittance channels to be greatly affected by the global pandemic.
The BSP said the economic hit further deepens following the implementation of a Luzon-wide enhanced community quarantine from March 17 to April 12, after the initial quarantine for Metro Manila alone since March 15.
“The latest assessment assumes a U-shaped recovery with the impact of Covid-19 lasting until H2 (second half) 2020 but with the economy expected to rebound by 2021,” it said.
Economic managers place the preliminary estimates of Covid-19’s economic impact on the domestic economy this year to be around 0.3 to 1.0 percentage point.
This year’s growth target is between a range of 6.5 percent to 7.5 percent.
The MB slashed the BSP’s key policy rates by 50 basis points, bringing the total rate cut to date to 75 basis points, to help ensure the sustained growth of the economy and after noting the leeway given by the projection that inflation rate will remain within the government’s two percent to four percent target until 2021.
To date, the BSP’s overnight reverse repurchase facility rate is 3.75 percent, the lowest since the 3.50 percent in July 2014.
The BSP said its officials are “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”.
“In calibrating its monetary policy settings, the BSP will continue to be data-dependent, guided by our inflation outlook over the policy horizon and the risks surrounding such outlook as well as data on demand conditions,” it said.
The BSP said its MB considers the latest rate cut as appropriate to support the country’s growth momentum and uplift market confidence against stronger headwinds.
“The BSP has already cut the policy rate by 75 bps thus far in 2020. We will continue to monitor the situation to determine if further reductions are warranted,” it said.
The BSP said its officials are also looking into a range of other supplementary measures that may be required to support non-inflationary and sustainable growth over the medium term.
These measures are aimed at ensuring adequate domestic liquidity and credit in the financial system as well as lowering borrowing costs for affected firms and households.
“These include, but are not limited to, recalibrating the interest rate corridor settings; suspending the term deposit facility auctions as market conditions warrant; and ensuring banks’ access to liquidity-enhancing facilities such as the rediscounting facility,” it said.
The BSP said a combination of targeted and well-coordinated health, fiscal, and financial market measures would be crucial in limiting the economic fallout from the pandemic due to the medical nature of the shock.
“In this regard, we believe the National Government has ample fiscal space for such measures, as reflected in its low debt-to-GDP ratio,” it added.