Bangko Sentral ng Pilipinas Governor Benjamin Diokno said Thursday there is no certain timetable for the regulator’s exit strategy from pandemic interventions, especially with the onset of new COVID-19 variants that threaten the sustained recovery of the economy.
The BSP injected around P2.3-trillion worth of liquidity into the domestic economy after the pandemic struck in the early part of 2020.
“We would also like to emphasize that the timing of the exit remains very much uncertain at this time. The threat of further COVID-19 infections continues to pose a downside risk to both growth and inflation in the coming months,” Diokno said in an online briefing.
“Therefore, we deem it prudent to leave some room for flexibility in policymaking to account for uncertainty and risk, especially as the situation remains very fluid,” he said.
Diokno said the timing and conditions under which the BSP would start unwinding pandemic-induced interventions would continue to be guided by the inflation and growth outlook over the medium term and the risks surrounding such outlook.
He said that consistent with the BSP’s data-dependent approach to policymaking, the monetary authorities would continue to monitor the evolution of various domestic factors and emerging global developments and potential spillovers.
“When these developments warrant a scale-down of policy support as economic recovery gains traction, the BSP will ensure a smooth transition in winding down its time and state-bound measures,” he said.
Diokno said that in deciding to scale back BSP liquidity-enhancing measures, the challenge for the BSP would be striking a delicate balance between providing adequate stimulus to the economy and preventing the buildup of inflationary pressures and risks to financial stability.
“Given the nascent economic recovery, the priority for the BSP is to ensure the sustainability of the recovery and prevent long-term scarring effects. At the same time, during the recovery phase, fiscal policy would play a more crucial role, especially as the BSP begins to unwind its various interventions,” he said.
The BSP in 2020 reduced the policy rate by 200 basis points to a record-low 2 percent, and the reserve requirement ratios by another 200 basis points to 12 percent to unleash more liquidity into the financial system to be used by individuals and firms for productive activities.
It also extended provisional advances—a temporary arrangement between the BSP and the national government—to provide the government access to ample cash resources while revenue generation is weakened and fulfillment of the borrowing program is challenged by the scale of the borrowing need and the unpredictability of financial markets amid the pandemic.
Diokno said the government settled on Dec. 10, 2021 its P540-billion obligations to the BSP ahead of maturity on Jan. 12, 2022. Yhe Monetary Board approved on Dec. 16, 2021 a new but lower request for liquidity support of P300-billion this year.
Initially, the advances were in the form of a zero-interest repurchase agreement (repo) transaction in the amount of P300 billion, granted in March 2020 and fully repaid in September 2020.
The provisional advances were then converted to a zero-interest three-month loan in the amount of P540 billion, granted in October 2020 and fully repaid in December 2020. These were again accessed in January 2021, extended in April 2021, and fully repaid in July 2021.
The government made another P540-billion provisional advance in July 2021, which was due October 2021 and extended to January 2022, but fully repaid in December 2021.