Shoring Up Market Confidence And Ensuring Liquidity And Credit

The Coronavirus disease 2019 (COVID-19) pandemic has had a sweeping impact on economies and financial systems around the world. The outlook for global economic growth has dimmed considerably in the first quarter of 2020, while turbulence in financial markets has constrained liquidity. These developments have prompted authorities around the world to undertake coordinated actions and policy measures to cushion economic activity and stabilize financial markets.

As in other countries, the Philippine domestic short-term funding market has experienced signs of strain and volatilities in the latter part of February. Following the virus outbreak, heightened volatility in the domestic financial markets has emerged. Concerns over the outbreak have further weakened global outlook and investment sentiment, resulting in flight to safe-haven assets and temporary increase in risk premium in the local debt markets.

With the brewing tightness in liquidity condition and amid a benign inflation outlook, the BSP has acted swiftly by announcing a series of extraordinary measures to support domestic liquidity. Specifically, the policy rate has been reduced four times in 2020 by a cumulative 175 basis points (bps) to 2.25% — by 25 bps on February 6, and by 50 bps each on March 19, April 16, and June 25. Reserve requirement for commercial banks has also been reduced by 200 bps to 12%, effective April 3, 2020.