'50-bps rate cut not enough to stem COVID-19 impact' !-- -- Lawrence Agcaoili (The Philippine Star) - March 3, 2020 - 12:00am MANILA, Philippines The 50 basis points rate reduction committed by Bangko Sentral ng Pilipinas Governor Benjamin Diokno is not enough to compensate for the shock coming from the global outbreak of the novel coronavirus disease (COVID-19), according to Philippine National Bank. "It's tempting to call for another BSP 25 basis points rate cut to ward off COVID-19's downside risk.

However, monetary policy accommodation of a few basis points would hardly compensate or mitigate a supply shock," PNB economist Jun Trinidad said. The Monetary Board resumed its easing cycle after slashing the benchmark rates by 25 basis points on Feb.

6 to support market confidence and to provide additional policy support to ward off the potential spillovers associated with increased external headwinds including COVID-19 outbreak. So far, the BSP has slashed interest rates by 100 basis points since May last year.

It also slashed the reserve requirement ratio for big and mid-sized banks by 400 basis points and for small banks by 200 basis points, freeing up P450 billion into the financial system to boost economic activity. The BSP slashed interest rates by 75 basis points between May and September last year before a prudent pause, keeping interest rates steady in November and December to allow previous monetary actions to work their way through the economy.

Last Thursday, Diokno said the central bank is not ruling out additional interest rate cuts if things deteriorate much beyond what was originally forecasted. BSP estimates showed the COVID-19 outbreak could slash the country's gross domestic product (GDP) growth by 0.

2 percentage points in the first quarter and by another 0.4 percentage points in the second quarter, bringing the full-year drag to 0.

3 percentage points for 2019. Trinidad said PNB has lowered this year's gross domestic product (GDP) growth target to a range of 6.2 to 6.

4 percent due to the impact of the COVID-19 outbreak. Trinidad warned the supply shock could expand to non-tourism sector as 23 percent of the country's exports were sourced from China, translating to an annual production loss of $12.2 billion if the country misses out on 100 percent of China imports and limited substitutes are found.

He said foregone revenue losses from the tourism sector coupled with the supply shock impact on the industrial sector primarily in the manufacturing segment heighten downside risk in the first quarter GDP growth.

© Pakistan Press International, source Asianet-Pakistan