BSP unleashes own QE to fight COVID-19
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has joined central banks from the US to Japan in a massive bond-buying scheme that will see it balloon its balance sheet by P300 billion to unleash credit in the financial system battered by the coronavirus disease-2019 (COVID-19) outbreak.
"To further support the Filipino people during the COVID-19 pandemic, the Monetary Board authorized the Bangko Sentral ng Pilipinas to purchase government securities from the Bureau of Treasury under a repurchase agreement in the amount of P300 billion," BSP said in a statement on Monday.
Pressed for details, Diokno said in a text message BSP would purchase three-month Treasury papers, "which are renewable for another three months, a total of six months."
Monday's announcement marked turnaround from Diokno's statement a day ago saying monetary authorities are not considering "unconventional measures" to offset the economic fallout from COVID-19 and the drastic response of a state-led lockdown of Luzon that shuttered businesses and put consumption to near-standstill.
To a certain extent, BSP's bond purchases resembles that of the US Federal Reserve which recently revived its quantitative easing program to buy $700 billion in mortgage-backed securities, as well the ongoing asset purchases by Bank of Japan meant to kickstart inflation. The Bank of England also decided recently to purchase 200 billion pounds worth of state bonds.
Bond-buying program gained prominence as a US Fed response to the damage of the global financial crisis of 2008, when liquidity in the markets shrank, pulling down economic activity and causing a recession in the world's largest economy.
By buying state-issued bonds, central banks give the government more money to facilitate investment and consumption which should have a knock-on effect to consumers and investors.
Once the securities mature, the government would need to pay back the P300 billion to BSP with interest.
“This arrangement is the most cost-effective way for us to provide an extra lifeline to the national government to support the programs to fight the pandemic,” National Treasurer Rosalia de Leon was quoted as saying in the central bank’s statement.
BSP's latest decision marked an escalation of last week's monetary stimulus, which saw the central bank slash policy rates by 50 basis points to its lowest level in two years, while providing penalty relief to banks as well as higher lending limits to borrowers.
The latest development was announced few minutes before the foreign exchange market closed to five-month low against the dollar. The peso ended trading at 51.33 to a dollar, the weakest close since October 17 last year when it hit 51.42.
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