More BSP easing to buoy growth

March 25, 2020

ANZ Research forecasts more easing measures from the Bangko Sentral n the coming months following the 50 basis points reduction in key rates Thursday, citing the need to ensure growth stability.

In a report dated March 19, the economic and financial markets research arm of Melbourne-headquartered Australia and New Zealand Banking Group Ltd. said the coronavirus disease  global pandemic is “an imminent threat to growth prospects both domestically and abroad.”

It said the BSP’s statement regarding the slash in the central bank’s key rates this week, which brought the total, to date, to 75 basis after the 25 basis points reduction last February, “maintains a clear easing bias.”

Aside from the rate reduction, the BSP’s policy-making Monetary Board also cut the rate of its rediscounting facility and eased penalties on required reserve and single borrowers limit.

The report noted the central bank’s growth outlook on the economic impact of the Luzon-wide enhanced community quarantine, from March 17 to April 12, 2020, which the central bank said: “poses significant downside risks to aggregate demand”.

The BSP said the lockdown could “help in slowing the spread of the virus” but noted that “the resulting disruptions to industries and private spending are likely to reduce economic growth in the near term”.

Thus, the need “for a follow-on monetary policy response to address the adverse spillovers associated with the ongoing pandemic” since inflation is seen to remain management and stay within the government’s 2-4 percent target band until next year.

Monetary officials revised downward the average inflation forecast for this year from three3 percent to 2.2 percent and the 2021 figure from 2.9 percent to 2.4 percent.

ANZ Research projects that with the quarantine “households are likely to undertake precautionary behavior on a scale similar to that in the GFC (global financial crisis) leading to lower domestic demand”.

It considers as “rather feeble” the government’s P27.1 billion worth of stimulus package announced to combat Covid-19 and its impact.

“With Covid-19 an imminent threat to growth prospects both domestically and abroad, we think the BSP has room to cut rates further in the coming months. That said, further support from fiscal policy is required to combat the impact of the virus,” it added.