Bangko Sentral ng Pilipinas Governor Benjamin Diokno said Thursday the manageable inflation environment allows monetary authorities to maintain the current accommodative policy stance.
Diokno said in an online briefing that with demand pressures remaining largely subdued and inflation expectations holding firm within the 2 percent to 4 percent target band, the BSP has scope to maintain monetary policy support to the economy to strengthen overall demand and shore up market confidence.
“The Bangko Sentral ng Pilipinas has carefully striven to preserve a balance between providing non-inflationary monetary policy support to the economy and ensuring the continued soundness of the banking system,” Diokno said.
“At this juncture, the BSP believes that we are not experiencing a trade-off between accommodative monetary policy and financial stability,” he said.
Diokno said the uptick in inflation in January to 4.2 percent–the fastest in two years since it reached 4.4 percent in January 2019—was attributed to transitory supply-side pressures.
He said the BSP measures were aimed at ensuring economic recovery and limiting the pandemic’s potential scarring effects in the long run. He said there was no evidence of increased risk-taking by financial institutions at this time.
“The manageable inflation outlook continues to allow the BSP to maintain its accommodative monetary policy stance. The recent inflation uptrend is seen to be largely transitionary, reflecting the impact of base effects, weather-related disturbances and the African Swine Fever outbreak on a narrow range of food items, as well as higher global oil prices,” he said.
He said with ample liquidity in the financial system, the BSP observed that banks remained prudent, as concerns over asset quality, profitability and the broader economic outlook resulted in tighter credit standards.
He said given the continuing monetary and fiscal policy interventions, the BSP was expecting credit activity to gradually improve in the coming months, especially as the mass vaccination program in the country gets underway.
Diokno said that in the meantime, regulatory relief measures were in place if financial institutions needed recourse from adverse conditions. He said the BSP continued to be on the lookout for potential threats to the overall health of the financial system.
“The BSP shall remain vigilant to help ensure that its policy responses will neither lead to excessive inflation nor result in threats to financial stability,” he said.
The Monetary Board kept the record-low benchmark interest rate of 2 percent on Feb. 11, taking into consideration the expected “transitory” impact of the elevated inflation rate in January.
The interest rates on the overnight deposit and lending facilities were also kept at 1.5 percent and 2.5 percent, respectively.
Last year, the BSP reduced by 200 basis points its policy rate to support the sluggish economy impacted by the COVID-19 pandemic. The gross domestic product contracted by 9.5 percent in 2020.