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Monetary policy easing releases P1.9T to Philippine financial system

Some P1.9 trillion has been released to the Philippine financial system as a result of monetary policy easing measures that have brought down rates to record lows, the Bangko Sentral ng Pilipinas (BSP) said Thursday.

The central bank has so far reduced policy rates by 200 basis points this year: by 25 basis points in February; by 50 basis points each in March, April, and June; and by another 25 basis points in November.

At present, the overnight reverse repurchase (RRP) facility is set at 2%, the overnight deposit at 1.5%, and the overnight lending facility at 2.5%.

"The totality of the policy and liquidity easing measures of the BSP has injected into the financial system over P1.9 trillion in liquidity or almost 10% of GDP," BSP Governor Benjamin Diokno told reporters in a virtual briefing.

"With regard to the transmission of our rate cuts to financial products, it may be noted that policy rate movements affect short-term financial instruments the most," he added.

Diokno noted that the average interbank loan rates have decreased by 214 basis points relative to the end-December 2019 period, while the 91-day treasury bills have declined by 200 basis points in the secondary market.

"However, due to the risk premium added on by banks to loan rates, it may not be immediately evident that our policy adjustments have been transmitted to market interest rates like loan rates," said Diokno.

"More importantly, since banks continue to use these rates as a benchmark for pricing their loans, we can expect this trend to translate to a decline in borrowing costs for households and businesses in the coming months," he added.

Despite this, lending has continued to decline as outstanding loans by big banks—net of their lending to each other—rose by 2.8% year-on-year as of September, sustaining a slowdown that started in March. None-performing loans likewise surged 60.2% to P364.47 billion in October.

"Amid the prolonged community quarantine and subdued economy, banks expect low credit demand. This expectation is consistent with results of the BSP baseline survey wherein gross loan portfolio of the banks system is expected to grow year-on-year by 3.6% by end-December 2020," said Diokno.

"Banks are taking various measures such as offering loan restructuring loan or flexible loan repayment terms to ease the financial burden of their clients," he said.

The BSP already earlier implemented measures to incentivize lending to micro, small, and medium enterprises (MSMEs) that have been hit by the pandemic, as Diokno said some P126-billion worth of loans have been granted to them as of end-October. — BM, GMA News