The Philippine central bank is ready to cut lending rates and buy billions of dollars’ more in government debt to keep the country’s $350bn economy afloat in the face of “a once in a lifetime shock”.
Benjamin Diokno, the central bank governor, told the Financial Times that the Philippine economy was “less vulnerable” to the disruption caused by Covid-19 than most of its south-east Asian neighbours because it relied less on exports and tourism. He said the institution had subjected the nation’s banks to a stress test last week and found them “very sound”.
“We will do everything necessary to avoid a recession in the Philippines,” Mr Diokno said in a telephone interview. “We can cut policy rates, we can expand this national lending programme to the national government, we can cut the reserve requirement and we are willing to help banks that are troubled if necessary.”
President Rodrigo Duterte has imposed one of Asia’s strictest lockdowns on Luzon island — home to the capital Manila and most of the nation’s banks and businesses. The country has 2,086 confirmed cases of coronavirus with 88 deaths.
Last week, as the Philippines passed a law giving Mr Duterte special powers to fight the pandemic, the central bank took steps to keep credit flowing. Its board approved the purchase of 300bn Philippine pesos ($5.9bn) of Treasury bonds.
The lockdown in Luzon is one of the strictest in the Asian region © FRANCIS R MALASIG/EPA-EFE/Shutterstock
This programme might now be expanded to as much as 500bn pesos, Mr Diokno told the FT, and the term of lending extended from three to six months.
“We all know this is temporary, right?” he said. “This is bridge financing for the national government.”
The central bank also reduced banks’ reserve requirements to 12 per cent, from 14 per cent, and Mr Diokno said he was prepared to make further cuts. “Maybe we could reduce it by another 200 basis points [2 percentage points] if needed,” he said.
In a survey of emerging Asian economies published on Tuesday, the World Bank found the Philippines was poised to weather the economic shock caused by Covid-19 better than some of its regional peers, including Thailand and Indonesia.
The bank forecast that Philippine growth in 2020 would fall by half in a best-case scenario to 3 per cent, from nearly 6 per cent last year. But in its more pessimistic scenario, the economy could contract by 0.5 per cent if efforts to contain the virus continued into 2021.
“During the Asian financial crisis and the global financial crisis, we continued to grow,” Mr Diokno said. “That shows the resilience of the Philippine economy.”
However, the worldwide economic shutdown does threaten to diminish one of the Philippines’ main sources of foreign exchange: remittances from carers, seamen and other overseas workers, some of whom have lost their jobs.
Mr Diokno, however, played down the risk.
“Even during bad times, overseas Filipinos would send more to their families,” he said. “I’m not sure whether that is the condition now, given the global effect of this pandemic, but in the past it [the remittance sector] has been resilient to shocks.”
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