The Philippine central bank is open to tweaking monetary settings outside its review cycle, as it seeks to support the economy and keep financial markets functioning smoothly with most of the country locked down against coronavirus, according to governor Benjamin Diokno.
Bangko Sentral ng Pilipinas “is not ruling out the possibility of an off-cycle monetary policy response,” Diokno said in an e-mailed reply to questions from Bloomberg. “We are ready to ease monetary policy settings further if warranted.”
Policy makers across Southeast Asia have been slashing interest rates, boosting market liquidity and injecting stimulus as the global economy grinds to a halt amid the pandemic.
With most activity shuttered in the main Philippine island of Luzon, in the past month the Bangko Sentral has cut its benchmark interest rate by a half-point, reduced banks’ reserves ratio and offered a short-term, zero-interest $6bn lifeline to the government.
The Philippine central bank has played a leading role in virus relief as the government readies its economic stimulus plan.
The legislature recently gave President Rodrigo Duterte extraordinary powers to fight the pandemic, including the ability to reroute funds from this year’s 4.1tn-peso ($81bn) budget and take over the operation of businesses such as hospitals.
Among the other options is “possible narrowing of the interest-rate corridor,” which “could help minimise volatility in market rates,” Diokno said.
The central bank maintains a lending rate and deposit rate, which sandwich the policy interest rate.
Typically, narrowing the rate corridor is considered an easing of monetary policy.
It would also allow lenders to borrow cheaper during times of tight liquidity or allow them to place funds in the central bank’s deposit facility at a higher rate or both.
Diokno also said the central bank is “ready to purchase government securities” from lenders in the secondary debt market, to ensure adequate liquidity in the financial system.
Bangko Sentral has opened a purchasing window to support the local debt market, he said.
The central bank is scheduled to meet again on its policy rate May 21.
The central bank has other measures available to inject money into the financial system, including scaling down its reverse repurchase operations and temporarily suspending weekly auctions of short-term deposits The peso is moving in line with economic fundamentals and the central bank favours a market-determined exchange rate, intervening only to avoid excessive swings. Outflows from emerging markets may continue in the short-term.
Policy makers will deploy tools to ensure markets remain orderly and to provide a buffer against severe fluctuations in portfolio flows.