MANILA – Measures implemented by the central bank to help ensure healthy economic activities despite the pandemic injected as much as PHP1.3 trillion into the financial system, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said.
While the central bank resumed offering all term deposit facility (TDF) tenors as well as the reverse repurchase (RRP) facility, Diokno said this does not mean that they are starting to mop up liquidity.
“Not yet. These reconfigurations are operational adjustments that are meant to provide better traction on short-term market interest rates while keeping monetary policy accommodative. We remain mindful of the need to reduce borrowing costs to support Filipino businesses and households,” he said in a virtual briefing Thursday.
Since the start of the year, the central bank’s policy-making Monetary Board (MB) slashed the BSP’s key policy rates by a total of 175 basis points.
These cuts, Diokno said, “could lead to an expansion in domestic liquidity by up to PHP46.2 billion in the next 12 months, all things held constant.”
BSP has also reduced major banks’ reserve requirement ratio (RRR) by 200 basis points, which released about PHP200 billion into the system.
It also allowed banks’ new loans to micro, small and medium enterprises (MSMEs) as to compliance with the reserve requirement rule.
Diokno said they have seen some positive results of this particular measure since data as of last June showed that banks have extended around PHP44.2 billion in new MSME loans.
He said these measures also boosted domestic liquidity as shown by its 16.6 percent year-on-year expansion to around PHP13.7 trillion last May, the fastest rise since last February.
He, on the other hand, noted that while lending to non-financial entities and households remains the growth driver of domestic liquidity, lending to the private sector has slowed.
Diokno said the monetary policy adjustments come with a lag, that it is why he is optimistic that lending to the private sector will eventually increase.
“Over the next several months, apart from the ample short term domestic liquidity and the cascading impact of the recent monetary policy easing and enhancing measures on market interest rates the BSP expects credit to the private sector to pick up in the coming months as the government gradually opens the economy,” he added. (PNA)
