BSP seeks right moment to unwind 2020's monetary easing measures

The Bangko Sentral ng Pilipinas (BSP) is gauging the appropriate timing for the unwinding of the aggressive monetary policy easing measures it implemented in 2020 to help mitigate the COVID-19 pandemic's impact on the economy.

In his remarks during the Ulat ng BSP sa Bayan on Friday, BSP Governor Benjamin Diokno said the central bank injected approximately P2 trillion in liquidity into the financial system, which is equivalent to about 11% of the country’s gross domestic product.

The liquidity pumped into the financial system resulted from the total of 200 basis points reduction in policy rates in 2020, which brought rates at record lows —the overnight reverse repurchase (RRP) facility at 2.00%, the overnight deposit at 1.5%, and the overnight lending facility at 2.5%.

“With this amount of liquidity, we are carefully assessing the appropriate timing of the unwinding of all these measures,” Diokno said.

“Doing this too late or too early may have serious repercussions on the economy,” he added.

The monetary easing was part of the BSP’s efforts to provide monetary stimulus to ease tightening liquidity conditions, boost business and consumer confidence, and ensure the continued orderly functioning of the financial system, according to the central bank chief.

“Aside from traditional monetary interventions and regulatory relief measures, we also implemented extraordinary measures,” Diokno said.

He said that the BSP entered into an initial P300-billion repurchase agreement with the Bureau of the Treasury at the onset of the pandemic in March 2020 to provide the national government added flexibility in dealing with the public health crisis.

“After the repo was settled in September, the BSP extended short-term provisional advances worth P540 billion to the national government in October,” Diokno said.

“This was followed by a fresh advance of P540 billion to the national government in January 2021, after the borrowing in October was settled in December,” he added.

In September 2020, he said that the BSP started issuing its own securities which helped manage liquidity better.

On the regulatory front, Diokno said the BSP issued “time-bound” and “targeted” regulatory and operational relief measures to encourage BSP-supervised financial institutions to continue their support of the economy in the following ways:

• Counting of loans to micro, small, and medium enterprises as part of banks’ compliance to the reserve requirement
• Higher single borrower’s limit
• Increased limit to real estate loans.

“Indeed, it was in the middle of one of the most formidable health and economic challenges in recent memory that we were tested as an institution, particularly in the effective delivery of our mandates,” Diokno said. — DVM, GMA News