MANILA, Philippines – Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno announced on Thursday, April 16, an interest rate cut of 50 basis points (bps), in a bid to further shield the economy from the impact of the coronavirus pandemic.

The overnight borrowing rate will be at 2.75% effective Friday, April 17.

Lowering the interest rate benefits individuals and businesses needing a loan. In turn, borrowing helps boost the economy, which is expected to fall into a recession in 2020.

“Knowing that monetary policy works with a lag, it is better for the Monetary Board to act now rather than later,” Diokno said.

On top of the rate cuts this year, the BSP has lowered the amount banks need to keep in their reserves and bought government securities worth P300 billion to boost the economy.

“We expect Diokno to continue to ease monetary policy, reducing [the reserve requirement] by another 200 bps before the end of April and cutting policy rates by another 25 bps by May,” said Nicholas Mapa of ING Bank Manila.

“Investors will continue to monitor the size and scope of the fiscal COVID-19 recovery plan now that the lockdown has been extended to the end of the month with government officials flagging a worst-case scenario technical recession by the [3rd quarter] of the year,” he added.

While market observers welcomed the cut in interest rates, sources in the banking industry said borrowing remains muted despite the central bank’s aggresive moves.

Moreover, economists earlier noted Filipinos’ hesitation to borrow from banks, while those who need funds like small businesses are shunned by banks as they are deemed risky borrowers.

Banks have also reportedly tightened borrowing rules amid the pandemic. – Rappler.com