MANILA – Banks need to further increase their lending activities and fiscal measures should be expanded to help boost economic recovery, a former central bank official said.
During the first day of the week-long Philippine Economic Society (PES) annual meeting Monday, former Bangko Sentral ng Pilipinas (BSP) Deputy Governor 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.
He said the 2.25 percent rate of the overnight reverse repurchase (RRP) facility is now lower than the 2.5 percent average inflation as of last October.
Thus, Guinigundo said banks should lend more to help fuel more economic activities since domestic liquidity remains ample.
“I think it is also important that the banks avoid being pro-cyclical. I think that’s the issue,” he said.
He added that as BSP cuts its policy rates banks, 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 said.
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.