To see you again golf Ben welcome to the program good morning good morning Kathy yeah and and you declared that pledge just hours after. Q1 GDP came in as a negative surprise for for the first three months shrinking to 0.2% far worse than your. Own forecast so what is the risk that q2 will sink deeper into the negative well as you know q1 there are three major events that happen during. That quarter number one is that volcano eruption number two is the. Travel restrictions that started as early as February and of. Course the the second second half of March is the the lockdown and so we were.
Surprised that it went down as low as zero point two percent but that is a pre consistent with our full year forecast of negative 1 percent to. Flat 4 for the year we expect the economy to go deeper in the second quarter because of the full effect of the of the lockdown remember it. Will be from second quarter means April May and June so one half of the quarter will. Be on we will be under under lockdown and then part of it will be relax quarantine so we expect the second quarter to be to be much worse than the first quarter.
But but not to let go to double-digit decline I think first governor if if you’re expecting it’s a little. Bit I don’t think it will go down to what what sound prescribes negative ten 12 percent you know why because if you are comparing the second quarter this year with the second quarter last. Year and the second quarter last year happened to be the slowest quarter because remember of the budget impasse in fact. Construction was negative in the second quarter of last year and of course we are going.
To open the economy in starting well we already have a more relaxed not down in in part of the month and then I expect the economy will. Be opened by meet with me this year so second quarter its April May and June so a big part of of the quarter will already be open right below negative ten I don’t. Think that’s that is likely and there we expect the economy to to recover partly hold on a week on quite week on on the third quarter but fourth quarter which. Is October November December I think we’ll start recovering and in fact our forecast is that next year the economy will will will zoom at 7.8 percent and that’s that’s. The consensus if you go by the predictions of there are international. Organizations right you know when we spoke a week ago you were forecasting only two straight quarters of negative growth with.
Q1 now in the negative that would potentially make it three quarters of negative growth so what is the original year recession actually I was kind of hoping that the. First quarter will be past a low positive and when I say u-shaped recovery it will be negative second quarter. And slightly negative third quarter so but you know all these predictions are based on a. Lot of uncertainties with some would say V shape W which is if there’s a second wave or au shape which I predict or even an L shape if. If there’s a third way so this is based on the assumption that will we got it right by the time we open the economy by mid mid May all right and of.
Course depends on the behavior of Filipinos right so don’t god those are the major major Patrick’s the government actions and the human behavior could there. Be a full-year recession Fitch solutions already called for that when I spoke to them last Friday I’m quite positive that for the fourth quarter will be will there be a strong recovery in. The fourth quarter given the Christmas season plus plus we by that time assuming the second wave all right so.
You know a second wave week we can have a strong fourth quarter you know the one silver lining. It really has been inflation it’s it’s been benign at a five-month slow at 2.2 percent and as you’ve said most recently the inflation outlook is lower at between 1.75 and 3.75 percent. So how soon and by how much more can you cut policy rates from here on out well as I always say we will.
Be will be big the dependent we have up roughly released a lot. Five powers already we knew this we reduce the interest rate by 125 basis points and we have reduced the reserve requirement by 200 basis points actually I have an. Authority from the monetary boil but to cut it further by another 200 basis points but.
I think it would be prudent and our part to to pose at this time. And see how the economy is responding to to the series of policy.
Moves being done by monetary board and because as you know monetary policy works with a lack what we do today does not make. A big difference the following day it will have to go through this system and sometimes the.
Lab could be as as early as three months or three quarters or could be a year so let’s see but I. Still have standing authority from the monetary board to cut the reserve requirement by another 200 basis points and as she said inflation looks benign and it it would appear that it could.
Be below 2 right now we we forecast that inflation will be 2% this year on. Average and will be about 2.5 fixture that is within. Our target of 3% plus or minus 1% so there’s this a lot of room there’s a lot of room on the monetary side but there’s also a lot of. Room on the fiscal side that’s true I’ll get to the fiscal side later but wouldn’t it be prudent right now. To do the triple our cut given that you know q2 will be a lot worse than forecast you know there’s also a move that we did which is.
That to to help the small and medium scale industries that any additional lending to the SMS the small medium scale. Industries will be counted as part of the reserve that’s a very.
Powerful tool to give an incentive to to banks to lend to to small medium scale industries plus combined with the government guarantee that’s a very powerful tool so effectively we. Did not only cut the reserve requirement from 18 to 212 but there’s that that additional incentive for banks to lend to small and medium scale enterprises remittances.
Still be a silver lining you said in previous conversations overseas Filipino workers tend to send more money home to family when things get worse here does it still apply in this. Pandemic when everyone else’s jobs are impacted including those overseas. Well we are closely monitoring the behavior of our overseas filipino workers but as I said historically there’s the altruistic side of the overseas filipino remittances we. Monitor also the number of overseas filipino workers who kept repatriated i think it’s in the neighborhood of 20 to 30,000 out of I don’t know how.
Many maybe million five W’s so so we continue to monitor this but at the moment we are still confident. That the obvious filipino workers remittances will be substantial last year it was thirty three billion u.s.. Dollars we we were we were anticipating before the crisis that the s will increase to third by three percent we downgraded it two percent so we continue to monitor right but on the.
Other hand we are optimistic on the BPO side given what given the new conditions i think there will be a boost to the BPO. Industry so that could be offsetting in a reference to the policy tools you stand.
Ready to deploy if warranted which ones would you use to prevent any rise in non-performing. Loans and loan defaults you know you know Kathy even before the crisis the BSP has prepared the banking industry well we have. Asked them to to increase the capitalization we have asked them to provide a lot of buffers cetera and so we did something we we did a stress test the non-performing loan which. Is a measure of the quality of up lending by by the banking industry. Is only in the neighborhood of 2% and so even in the maybe in extreme case where it could go up to about 5% they can’t the can still afford the Cadi the banking. Industry can still afford or the attacks they will survive with a lot so we have provided them a lots of buffers so but in addition we what you said.
What powerful tools I think you mentioned interest rate car at last the reserve requirement we still have long ways to go on the on the reserve cut and. Even on the prevent of the Pennine inflation we are still they’re still good for interest rate cut in the reserve requirement cut right but banks have real estate. Loans to contend with in in view of the economy’s contraction and the property market is highly correlated to the economy do you. Foresee any changes on the central bank’s regulations and banks real estate exposures on the the real states exposure of banks again because we.
Have prescribed prudential limits is I think if it’s in the neighborhood of less than 20% so we’re not concerned with that okay so that’s plus recently we also increase. The single barrel limit from 25% to 30% do I get to give back some of the. Ways in additional lending to to some industries that they think need to be helped in this in this pandemic so we are accommodating we in addition to.
The policy rate cut and to the reserve requirement we have relaxed our our restrictions on on banks. And so we hope that they can cope with we depart with the current crisis as for the proposed special purpose vehicle governor how much is the initial target amount and and.
What would be the incentives available for banks the we are working closely with the House committees on this and with the. Department of Finance I think the a big role here will be the Securities and Exchange Commission and the unleash that government backs land bank and nd BP.
So I think the the a big chunk of this incentives will be provided for by the Department of Finance and of course there will be additional outlay to. Increase the amount that can be guaranteed by the government I don’t have the. Specific numbers we are finalizing the amount at the moment but we on the part of the PSP maybe we will relax some of the rules or rent and.
The maturity or of some loans etc so this in the process but I expect this to be completed before before the end of the month. Now let me pick up on fiscal stimulus as you mentioned that earlier I know that you. Have the view fiscal stimulus will be more effective than monetary stimulus and when you look at the southeast asian peers they’ve they’ve already introduced multiple rounds of stimulus to cushion the fallout including. Malaysia Singapore Thailand Indonesia the Philippines has yet to approve a. Large standalone fiscal package not reallocations of items in the existing budget so does the.
Philippines need to catch up I think I keep saying this that monetary policy is not the only game. In town we need a strong fiscal stimulus and I think what what gets in the way right now is the absence of maybe a supplemental. Budget because as you mentioned what the national government has done is to reallocate the Congress has authorized the President to reallocate the 2020 budget and a big chunk of their reallocated. Amount we went to to Social Welfare grants to to those affected by. Better by the pandemic but I guess this will have to be we need a supplemental budget very badly and the focus should be on job 3.
Creating activities so that should be the focus of the supplemental budget. So how much should the supplemental money to save jobs the well the government is willing to increase the deficit target from 3% to GDP. To about 55.3% could go up higher 6% of GDP I think that is justifiable. Given the depth of the crisis just a final point.
What do you make of the proposed 1.3 trillion peso philippine economic recovery act it is pending in Congress do you think that’ll. Do for the very strong budget that you’re looking for I think we have to be very careful in the in the side of this. Stimulus program I think we should not throw good money after vibe because after all this has.
To be financed there were 1.3 trillion so we have to have an idea of how the new economy would look like I don’t want to use the term new normal that is. An oxymoron that’s the economy will change drastically the new economy will be much much different it it’s got. To be safer it’s got to be better and it’s got to be tech-savvy so some industries will naturally wither away or die down and some will be some new ones will. Emerge so we should look at what will emerge and what needs to be helped and what in the. Internals in the new economy and so the numbers I’m not scared of the numbers because I’m sure it is going to be a multi-year.
Not–are assistance but I think we have to be careful we have to be we have to be methodical and we have to be can we. Have to study this quite quite quite well all right right and you make me think about the oxymoron of being new normal all. Right well thank you governor I appreciate the time as always and you keep well governor been the owner of the Philippine central bank. You.