The Bangko Sentral ng Pilipinas said Thursday the policy rates would remain data driven, and not dependent on the action by the US Federal Reserve which raised interest rates for the first time since 2018.
“We don’t need to move in pace with the Fed… but we will review our inflation outlook in our incoming policy meeting,” Diokno said, adding any policy decision by the Monetary Board would remain data driven—such as the latest numbers on inflation and domestic output—to avoid “unintended consequences.”
“The BSP has various tools. We have strong external buffers and liquidity-enhancing tools to stem the volatility that may arise due to the [US Fed] tightening. Our decision remains data dependent,” Diokno said.
The Federal Reserve on Wednesday increased interest rates and laid out an aggressive plan to push borrowing costs to restrictive levels next year. After keeping its benchmark interest rate anchored near zero since the COVID-19 pandemic struck, the Federal Open Market Committee said it would raise rates by 25 basis points, bringing the rate now into a range of 0.25 percent to 0.5 percent.
The move will correspond with a hike in the prime rate and immediately send financing costs higher for many forms of consumer borrowing and credit. Fed officials indicated the rate increases would come with slower economic growth this year.
Diokno earier said there was no certain timetable for the BSP’s exit strategy from its pandemic interventions, especially with the onset of new COVID-19 variants that threaten the sustained recovery of the economy.
“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 its pandemic-induced interventions would continue to be guided by the inflation and growth outlook over the medium term and the risks surrounding such outlook. Julito G. Rada
The BSP in 2020 reduced the policy rate by a total of 200 basis points to a record-low 2 percent, and the reserve requirement ratios by another 200 basis points to 12 percent in a bid 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.
The BSP injected around P2.3 trillion worth of liquidity into the domestic economy since the pandemic struck.