Warning of an economic downturn, the central bank on Thursday cut its policy rate and relaxed some regulations to help banks and businesses amid the Covid-19 pandemic.

The Monetary Board, the policymaking body of the Bangko Sentral ng Pilipinas (BSP), cut the overnight reverse repurchase (RRP) facility by 50 basis points (bps) to 3.25 percent, effective Friday, March 20, 2020.

It also ordered interest rates on the overnight lending and deposit facilities reduced to 3.75 percent and 2.75 percent, respectively, in its policy meeting.

In a statement, the BSP said the Monetary Board authorized the “time-bound, temporary relaxation” of BSP regulations on compliance reporting by banks, calculation of penalties on required reserves, and single borrower limits.

It also approved a temporary removal of the term spread on rediscounting loans relative to the overnight lending rate

The BSP warned that the balance of risks to the inflation outlook “now leans toward the downside for both 2020 and 2021.”

“The uncertainty over the potentially protracted pandemic poses significant downside risks to aggregate demand. The Monetary Board noted that while the enforcement of quarantine measures could help in slowing the spread of the virus, the resulting disruptions to industries and private spending are likely to reduce economic growth in the near term,” it said.

“Moreover, Covid-19 has likewise dampened prospects for the global economy, which could negatively impact tourism and trade, Overseas Filipino remittances, and foreign investments,” it added.

The Monetary Board signaled that there would be a “follow-on monetary policy response” to address the impact of the pandemic.

It said supplemental actions could be taken, including recalibrating the interest rate corridor settings; reducing the reserve requirement ratios; suspending the term deposit facility (TDF) auctions; and ensuring access to liquidity-enhancing facilities such as the rediscounting windows. (PressONE.ph)