Economic scarring or the long-term impact of last year’s recession due to the pandemic could be kept at the minimum, the Bangko Sentral ng Pilipinas (BSP) said in a live Daily Tribune virtual interview on Tuesday.
BSP Department of Economic Research senior director Zeno Ronald Abenoja stressed the central bank’s preparedness to deploy whatever tool it has to limit such impact.
“One of the concerns that we have is how to limit possible scarring, long term effects of this contraction last year. The labor sector has been hit and there are several sectors like tourism getting a bit of the large part of the shock,” Abenoja explained.
“The BSP is prepared to continue this accommodative monetary policy stance to support the economy, to support the recovery, and limit possible side effects,” he added.
The local economy contracted by minus 10 percent for the first three quarters of 2020, sealing its fate of staying within the negative territory for the full-year figure.
Top state economic managers adjusted their outlook for 2020 gross domestic product (GDP) from minus 5.5 percent to a much steeper range of minus 8.5 to minus 9.5 percent.
The BSP executive recognized that this is indeed a “very challenging time” owing to the pandemic, however, economic indicators show an improvement signaling its track to recovery.
“Remittances have slowed down and contracted but not as much as what was initially forecasted by analysts. Since last year, mobility indicators show an uptick. Economic activity is beginning to go up in certain areas,” Abenoja said.
“If we look at high-frequency indicators, the business sentiment shows some slight turnaround… Household sentiment also saw a turnaround but still, it’s pessimistic but not as pessimistic as in the second or the third quarter of last year,” he added.
While at it, BSP Policy and Specialized Supervision Sub-Sector managing director Lyn Javier emphasized that while liquidity injected in the local financial system return to the central bank in terms of its issued securities, its intention to promote higher lending activities could be seen in the coming months.
“We’re seeing favorable indicators, positive indicators right now. For instance, the MSME (micro, small and medium enterprises) loans as reserve requirements as of 31 December 2020 averaged at P162.8 billion as compared with the P8.7 billion last April 2020,” Javier explained.
“For large enterprises, it’s at P33.3 billion. So, we are quite optimistic that we will be seeing loans to pick up in the coming months, as stringent measures are slowly being lifted and then households and businesses already proceed with their normal activities,” she added.
The BSP has already injected about P2 trillion in terms of fresh liquidity to the financial system, representing around 10 percent of the country’s overall GDP.
Other relief measures imposed by the BSP to encourage credit activities include the lowering of risk weights for loans granted to MSME and the alternative compliance to banks’ reserve requirement ratio through MSME loans.