Asian Central Banks Ramp Up Defense Against Covid-19 Economic Shock

Several central banks in Asia announced a host of measures including interest rate cuts and quantitative easing on Thursday in a bid to ease the adverse economic impact of the spread of the coronavirus, or Covid-19.


The Indonesian central bank slashed its key rate by 25 basis points to 4.50 percent and cut the deposit facility rates by a quarter-point to 5.25 percent.

The bank described the rate reduction as a “pre-emptive measure to maintain domestic economic growth momentum”. “The Monetary Policy remains accommodative and is consistent with controlled inflation in the target corridor,” the bank added.

In February, the bank had cut the rate by a 25 basis points.
The central bank had held an emergency meeting on March 2 and decided to implement some stimulus measures to mitigate the economic shock from the Covid-19 spread.

On Thursday, Bank Indonesia said it has reinforced its policy mix towards mitigating the risk of COVID-19 transmission, while maintaining money market and financial system stability and catalysing economic growth momentum.

The bank decided to strengthen its currency market interventions to maintain the rupiah exchange rate stability, to implement measures to ensure banking system liquidity and increase the frequency of FX swap auctions, among others.

Citing large downside risks due to the global spread of the coronavirus, Bank Indonesia lowered the domestic economic growth projection for 2020 from 5.0-5.4 percent to 4.2-4.6 percent. The central bank expects domestic economic growth to rebound in 2021 to 5.2-5.6 percent after Covid-19 has passed and the subsequent recovery in the investment climate.


The Philippine central bank resorted to a sharp 50 basis points rate cut on Thursday, to offset the downturn caused to the economy by the spread of Covid-19.

The Monetary Board of the Bangko Sentral ng Pilipinas, or BSP, slashed the overnight reverse repurchase facility rate by 50 basis points to 3.25 percent. Economists had expected a quarter point reduction.

The bank had lowered the rate by 25 basis points in February.
The Monetary Board also decided to authorize the time-bound, temporary relaxation of BSP regulations on compliance reporting by banks, calculation of penalties on required reserves, and single borrower limits, and also approved a temporary reduction in the term spread on rediscounting loans relative to the overnight lending rate to zero.

“With a manageable inflation environment and stable inflation expectations, the Monetary Board sees enough policy space for an assertive reduction in the policy rate at this juncture to cushion the country’s growth momentum and uplift market confidence amid stronger headwinds,” the BSP said.

The BSP is likely to roll out additional measures to ease liquidity conditions further, such as the lowering of the term deposit facility volumes and/or reductions to reserve requirements in the near term, the ING economist Nicholas Mapa said.

The central bank sharply lowered its inflation projections to 2.2 percent in 2020 and 2.4 percent in 2021, citing the collapse in oil prices and the adverse effects of Covid-19.


The Taiwanese central bank cut its key interest rate by 25 basis points to a record low 1.125 percent and an NT$200 billion special facility under which it will provide banks with additional funds at a rate of one percentage point lower than the policy rate on accommodations with collateral that is at 1.50 percent, to boost credit to small and medium enterprises.

The central bank said it will, when needed, hold Executive Directors’ Meetings or emergency Board Meetings outside the regular schedule and deploy monetary policy tools to act as appropriate to fulfilling its statutory mandates.

Citing risks posed by the coronavirus outbreak, the central bank revised down the growth forecast to 1.07 percent for the first half of the year. The bank expects the domestic economy to expand by 1.92 percent in 2020 this after a recovery in the second half. “The developments of the COVID-19 outbreak will be a key variable for Taiwan’s economy this year,” the bank said.

The bank cut the annual average headline inflation and core price growth forecast rates for 2020 to 0.59 percent and 0.55 percent, respectively.


The Bank Negara Malaysia cut the Statutory Reserve Requirement (SRR) Ratio by 100 basis points from 3.00 percent to 2.00 percent.

Along with other stimulus measures for the financial system, this is expected to release approximately MYR 30 billion worth of liquidity into the banking system, the bank said.

On March 3, Malaysia’s central bank slashed its interest rate by 25 basis points for a second policy session in a row to 2.50 percent, as it expects growth to be hurt by the COVID-19 outbreak.

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