More help needed from banks, fiscal sector vs. pandemic’s impact


By Joann Villanueva

MANILA – Banks need to further increase their lending activities and fiscal measures should be expanded to help boost economic recovery, a former Bangko Sentral ng Pilipinas (BSP) official said.

At the first day of the week-long Philippine Economic Society (PES) annual meeting Monday, former BSP Deputy Gov. Diwa Guinigundo said the central bank has done the heavy lifting to help buoy the domestic economy from the impact of the pandemic.

This, after the central bank cut key policy rates by a total of 175 basis points to date, extended temporary borrowing to the national government, and reduced banks’ reserve requirement ratio (RRR).

Guinigundo said real domestic interest rates are now in negative territory due to aggressive cuts in the BSP’s key policy rates. The 2.25% rate of the overnight reverse repurchase (RRP) facility is now lower than the 2.5%  average inflation as of last October, he added.

Guinigundo said banks should thus lend more to help fuel more economic activities since domestic liquidity remains ample. “I think it is also important that banks avoid being pro-cyclical. I think that’s the issue,” he said.

He noted that as BSP cuts its policy rates, this releases more liquidity into the system but the banks have been putting it back to the BSP’s RRP facility.

“I think it’s up to the banks to precisely realize that it’s not bad to make losses during this time. After all, the BSP is also there providing regulatory purveyance, regulatory relief. So it should be (a) whole of society approach that should be mastered this time,” he stressed.

Guinigundo said the government should reconsider repurposing large allocation under the proposed 2021 national budget to boost the fiscal sector and help address lost productivity and low public confidence.

He said additional fiscal measures are needed to focus on “economic scars” caused by the pandemic. (PNA)

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