Diokno rules out further interest rate cuts for now

Bangko Sentral ng Pilipinas Governor Benjamin Diokno does not see a further cut in interest rate right now despite the spread of 2019 novel coronavirus (COVID-19) that some analysts say could dampen economic growth.

“... At the moment I don’t see another rate cut... we are happy where we are right now,” Diokno said in a press briefing at the BSP on Friday.

But Diokno said any move by monetary authorities would depend on the available vital economic data and latest developments.

BSP Governor Benjamin Diokno
Analysts earlier said the spread of the dreaded disease that already claimed the lives of over 1,000 in mainland China could prompt central banks to cut interest rates to boost economic growth.

“... Depending on the information and latest developments... We respect economists’ views, but as far as we are concerned, we are happy where we are at the moment ...,” Diokno said.

The Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, on Feb. 6 reduced the benchmark interest rates by 25 basis points to 3.75 percent, taking into account the benign inflation environment.

The interest rates on the overnight lending and deposit facilities were cut to 4.25 percent and 3.25 percent, respectively.

The board’s latest baseline forecasts indicated a broadly steady path of inflation for 2020 and 2021, with average inflation remaining within the target range of 2-4 percent.

Diokno suggested that to offset the expected impact on domestic tourism because China is one of the major sources of foreign visitors in the country annually, tourism stakeholders must do their part to prevent it from happening.

“[Maybe], hotels should cut their rates to encourage domestic tourism,” Diokno said.

Earlier, global debt watcher Moody’s Investors Service said the Philippines will be impacted negatively by the outbreak of the 2019 novel coronavirus because domestic tourism—one of the strengths of the economy—relies heavily on Chinese visitors.

“As travel demand softens due to disruptions from the outbreak, growth in economies that are highly reliant on foreign visitors—those from China in particular—will weaken,” Moody’s said.

“Such economies include Thailand and the Philippines, where the direct contribution of travel and tourism industries is more significant as a share of GDP. Employment conditions will also weaken because these industries are large employers in APAC [Asia-Pacific] countries,” Moody’s said.

Moody’s also said economic slowdowns and a deterioration of employment conditions would lead to increases in loan losses for banks, with the latter hurting quality of consumer loans in particular. This in turn will drive credit costs and weaken banks’ profitability.

“Exposures to small and medium sized enterprises (SMEs) related to tourism and travel will be most at risk because these borrowers have lower financial flexibility compared to the more diversified corporate,” Moody’s said.

Topics: Bangko Sentral ng Pilipinas , BSP Governor Benjamin Diokno , interest rate , 2019 novel coronavirus , COVID-19 , economic growth
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