The Bangko Sentral ng Pilipinas said Wednesday it will maintain the stimulus measures it imposed to address the devastating impact of the COVID-19 pandemic until the economy fully recovers.
BSP Governor Benjamin Diokno said in an online briefing it was too early to talk about any exit strategy, or unwinding of stimulus measures, at the moment.
“This is a recovery year,” he said, adding the economy might return to its pre-pandemic level—with an annual average growth rate of 6 percent—by the second half of 2022.
“When the economy reaches full recovery, the BSP will aim to implement a preplanned strategy for the withdrawal of policy stimulus, taking care to avoid unwinding policy measures either too early or too late. This is to ensure the sustainability of the economic recovery while also guarding against any emerging threats to the BSP’s price and financial stability objectives,” Diokno said.
Diokno said that consistent with the BSP’s data-driven approach to policymaking, the timing of the exit of monetary policy measures would primarily depend on the evolution of domestic factors, particularly the outlook for inflation and economic growth.
“At present, amid a manageable inflation environment, subdued demand pressures, and within-target inflation expectations, the BSP has scope to preserve monetary policy support to the economy to help strengthen overall demand and shore up market confidence,” Diokno said.
The Monetary Board cut the overnight borrowing rate by a total of 200 basis points last year to a record-low of 2 percent to support the sagging economy impacted by the pandemic. The gross domestic product contracted by 9.5 percent in 2020, the worst since the end of World War 2.
The BSP also cut the reserve requirement ratio of banks by 200 bps to calm the markets and support bank lending to both retail and corporate sectors.
Diokno said total liquidity infused into the financial system to support the economic recovery from the pandemic hit about P2 trillion in 2020.
He said the recent inflation uptrend observed in recent months was expected to be largely transitory, reflecting the impact of weather-related disturbances and higher global oil prices.
Inflation in February accelerated to a 26-month high of 4.7 percent from 4.2 percent in January on higher food prices.
Diokno said the BSP remained vigilant and ready to respond accordingly against the emergence of second-round effects such as increased calls for wage and transport fare hikes or elevated inflation expectations.
“The BSP likewise continues to pay close attention to demand-driven inflation as recovery becomes self-sustaining,” Diokno said.
Diokno said the BSP actively took part in international discussions that tackle central banks’ policy interventions and exit strategies in the post-pandemic period.
“We participate in international fora on COVID-19 exit strategies because alongside a well-coordinated national policy, joint measures at the global level can help bring about a stronger and more sustained economic recovery,” he said.
“Like many central banks, the BSP recognizes the need for a carefully-formulated exit strategy from the liquidity-enhancing policy measures against the effects of COVID-19. Such an exit strategy serves as a framework to guide the actions of the central bank and anchor public expectations,” he said.
