MANILA – Economists said monetary policy measures can only do so much thus, the need for additional fiscal measures to buoy the Philippine economy from the effect of the coronavirus disease 2019 (Covid-19), now a global pandemic.
To date, the Bangko Sentral ng Pilipinas’ (BSP) policy-making Monetary Board (MB) has cut the central bank’s key policy rates by a total of 75 basis points, has authorized the BSP to purchase PHP300 billion worth of government-issued debt securities from the Bureau of the Treasury (BTr) with repayment period of six months, and slashed by 200 basis points universal and commercial banks’ (U/KBs) reserve requirement ratio (RRR) effective on March 30, 2020.
These measures are targeted to help buoy the domestic economy from the impact of Covid-19.
BDO Unibank chief strategist Jonathan Ravelas said these measures give monetary officials “some space.”
“Monetary stimulus will help but fiscal stimulus will be more effective,” he said.
Ravelas said government spending will have the bigger part in addressing Covid-19’s economic impact since it will help sustain the robust domestic consumption.
He said government spending will help counter the drop in spending among Filipinos, most of whom are hampered to go out of their homes.
The government implemented a community quarantine over Metro Manila from March 15 until April 12, 2020 but Malacañang widened the coverage through an enhanced community quarantine for the mainland Luzon starting March 17.
In a report Tuesday, ING Bank Manila senior economist Nicholas Mapa said contributions of the BSP, as well as the other central banks to measures targeted to address the economic impact of Covid-19, is just a small part.
He said monetary authorities are limited to helping keeping banks and businesses afloat while maintaining financial system stability.
Mapa said central banks can also lower interest rates and/or flood the system with liquidity to combat tightening credit conditions and to reignite loan demand.
“Monetary policy, however, is only one side of the equation with the fiscal side needing to do its share,” he said.
Mapa likened the economy “to a sick patient with monetary policy delivering all the medication and vitamins to help in the recovery.”
“The medicines and vitamins will lay the groundwork to help the patient recover and fight the virus but the patient will need to survive and he will need to eat. This is where the fiscal rescue package is needed, to give the ailing economy sustenance to survive this crisis and to keep it alive long enough for the medicines and vitamins to get the patient back to full health,” he added.
With the need to further help lift the domestic economy, Mapa forecasts another reduction in the BSP’s key policy rates “even before the May meeting and another 200 bps worth of RRR reductions should market conditions remain tense.”
“With central banks here and abroad, we wonder when the fiscal side will come in and join the rescue,” he added.
Last week, the government announced a PHP27.1-billion stimulus package for sectors affected by the pandemic.
On Monday, Congress, in a special session, granted Malacañang’s request to give President Rodrigo R. Duterte additional powers needed to address the Covid-19 pandemic through, among others, the realignment and reallocation of this year’s budget and direct the operation of any privately-owned medical and health facilities to house health workers and serve as quarantine areas and medical relief centers. (PNA)
