BSP sees monetary measures’ impact lagging; backs fiscal action


BANGKO SENTRAL ng Pilipinas (BSP) Governor Benjamin E. Diokno said fiscal measures could be more effective for revving up the recovery at the moment, with monetary easing undertaken during the pandemic still taking time to filter down the banking system.

In an online briefing, Mr. Diokno said bank loan rates are still not easing with the industry reluctant to risk making any major lending push, though the effects of previous monetary actions are already apparent in the government securities market.

Mr. Diokno added that the BSP is nevertheless prepared to continue with an accommodative stance.

He said fiscal programs to bolster public health, address supply-chain issues, preserving employment levels via wage subsidies, will provide a welcome boost.

“Even as BSP is prepared to implement additional policy measures, fiscal policy should play a more significant role in helping restore market confidence,” Mr. Diokno said Thursday.


“The slow adjustment in bank lending rates, together with bank risk aversion and weak loan demand, suggest that the impact of the BSP’s policy actions could take a longer time to materialize,” Mr. Diokno said.

The central bank has so far cut 200 basis points (bps) from benchmark rates this year, bringing the overnight reverse repurchase, lending, and deposit facilities to record lows of 2%, 2.5%, and 1.5%, respectively.

However, lending growth has been tepid at 2.8% as of September, the slowest in more than 13 years or since the 2.4% rise in June 2007. The BSP has found that banks imposed tighter lending standards in the second quarter to minimize bad loans.

“Bank lending rates have been slow to adjust, in part because of risk aversion and concerns on asset quality,” Mr. Diokno said.

“For instance, in exchange for a relatively easy arrangement to secure a personal loan, banks appear to prefer higher lending rates to offset risk and related operational costs,” he added.

The lower interest rate environment has had more of an impact on domestic market yields for the time being, Mr. Diokno said.

“The 91-day T-bill rate and the 3-month secondary market government securities rate have declined by 217 bps and 212 bps, respectively, relative to their corresponding rates as of end-December 2019,” Mr. Diokno said. He also cited the steady decline in the rates of the central bank’s term deposit facility, with oversubscriptions reflecting ample liquidity in the system.

On the other hand, measures designed to encourage credit support for micro-, small-, and medium-sized enterprises (MSMEs) have gained traction, with average lending rates on microenterprise loans down 100 bps to 5.9% in June compared with pre-lockdown levels. Rates for SME loans also fell 30 bps on average to as little as 5.5%, Mr. Diokno said.

Across ASEAN, it appears that there could be scope for higher fiscal stimulus.

The Philippines’ discretionary fiscal response to the COVID-19 crisis is low compared to our measures undertaken by Indonesia, Malaysia, and Thailand, he said. — Luz Wendy T. Noble


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