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Philippine central bank governor says rate cuts so far are ‘more than enough’ to support economy through 2021

SINGAPORE — Philippine central bank governor, Benjamin Diokno, said interest rate cuts so far are “more than enough” to support the economy through next year. But he warned that global economic conditions remain “very uncertain.”

The central bank, Bangko Sentral ng Pilipinas or BSP, last week unexpectedly cut its main policy rate by 25 basis points to an all-time low of 2%. The latest move takes the cumulative rate cuts in the Southeast Asian economy this year to 200 basis points.

In addition to economic pressure from the coronavirus pandemic, the Philippines has in recent weeks been hit by a series of typhoons — “natural calamities” that could “pose strong headwinds to the recovery of the economy in the coming months,” BSP said in its monetary policy statement.

“At this point, based on our evidence and based on the developments, I think the 200 basis points cut this year is, I think, more than enough to carry us through next year,” Diokno told CNBC’s “Squawk Box Asia” in a phone interview on Monday.

Benjamin Diokno, governor of the Philippine central bank, Bangko Sentral ng Pilipinas.

Veejay Villafranca | Bloomberg | Getty Images

But the governor pointed out that uncertainties in the global economy are still present, given a resurgence in Covid-19 cases in the U.S. and Europe. That means the central bank could still make changes to its economic expectations or monetary policy in the coming quarters, said Diokno.

He added that uncertainties could persist into the first quarter of next year. From the second quarter, the Philippine economy is expected to stage a “strong rebound” to end 2021 with a growth of 6.5% to 7.5% — reversing an expected 9% contraction this year, said the governor.

More fiscal spending

Some analysts said the BSP will likely cut rates further in 2021.

Alex Holmes, Asia economist at consultancy Capital Economics, said last week the central bank could cut another 50 basis points in 2021 “given the likely weakness of the economic recovery.”

Holmes noted in a report that the coronavirus outbreak in the Philippines is still not under control, and the country has yet to finalize any pre-orders for vaccines. That means some containment measures — which are holding back economic recovery — will need to stay in place, he explained.

“What’s more, fiscal stimulus has been lacklustre at around 3% of GDP. This is much smaller than elsewhere in the region, and the situation is unlikely to improve anytime soon. The government has repeatedly talked down the idea of more stimulus next year,” Holmes added.

Diokno acknowledged that government spending can increase further. He pointed out that the country’s debt-to-GDP ratio of around 40% is among the lowest globally, and that gives the government room to spend more.

On the monetary policy side, the central bank has deployed around 1.9 trillion Philippine pesos (about $39.41 billion) — equivalent to 9.6% of GDP — to support the economy, said the governor.

“As you know, monetary policy is not the only game in town, and so the fiscal side has to pick up. They’ve been spending but I think they can spend more because when the crisis hit us, we’re in a very strong fiscal position,” he said.  


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