BSP’s Diokno sees no need for another rate cut amid COVID-19 threat

As the 2019 coronavirus disease (COVID-19) poses threat to global economy, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno sees no need for further monetary easing as the central bank brushed off the disease’s impact on the domestic economy.

“At the moment I don’t see the need for another rate cut,” Diokno said during the bi-weekly Governor Ben E. Diokno (GBED) Talks in Manila on Friday.

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The central bank chief also hinted that monetary authorities will not deviate from its earlier announcement of 50 basis points reduction in key policy rates this year.

The BSP’s policy-setting Monetary Board decided to cut key policy rates by 25 basis points in its first meeting for the year.

The reduction brought the overnight borrowing rate to 3.75%, the overnight lending to 4.25%, and the overnight deposit to 3.25%.

“The 25 basis points policy interest rate cut on February 6 was intended as a preemptive move to support market confidence and ward off the possible spillover effects of the outbreak on domestic demand,” the BSP chief said.

Diokno said monetary authorities are planning to slash the another 25 basis points in the policy rates by second quarter or second half of 2020.

In 2019, the Monetary Board slashed interest rates thrice for a total of 75 basis points as the central bank moved to relax the tightening cycle in 2018 —when it raised interest rates by a total of 175 basis points to cushion the impact of spiking inflation rate.

Citing potential disruption on foreign tourist arrivals and related services, the central bank estimates that the COVID-19 may reduce the gross domestic product (GDP) by 0.3 percentage point in 2020.

With the measly impact of the virus on the economy, Diokno said, “At the moment, I don’t see a need for further monetary easing.”

The central bank chief also took note that China accounts for less than 1% of foreign direct investments in the Philippines.