BSP is committed to maintaining stimulus actions

Bangko Sentral ng Pilipinas said on Wednesday that 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 that it was too early to talk about an exit strategy or dismantling the stimulus measures at this time. “This is a year of recovery,” he said, adding that the economy could return to its pre-pandemic level, with an average annual growth rate of 6 percent, by the second half of 2022. “When the economy reaches Full recovery, the BSP will aim to implement a pre-planned strategy for the withdrawal of political stimulus, taking care not to undo policy measures too soon or too late. This is to ensure the sustainability of the economic recovery and, at the same time, guard against any emerging threats to the BSP’s price and financial stability objectives, ”said Diokno. Diokno said that according to the BSP’s data-driven approach to policy making, the timing of the exit of monetary policy measures would depend mainly on the evolution of domestic factors, in particular the outlook for inflation and economic growth. “Currently, amid a manageable inflation environment, moderate demand pressures and inflation expectations within target, the BSP has scope to preserve monetary policy support for the economy to help strengthen overall demand and shore up market confidence, “Diokno said. The Monetary Board lowered the overnight loan rate by a total of 200 basis points last year to a record low of 2 percent to support the pandemic-stricken economy. Gross domestic product contracted 9.5 percent in 2020, the worst since the end of World War II. The BSP also lowered the banks’ reserve requirement ratio by 200 bp to calm markets and support bank lending to the retail and corporate sectors. Diokno said that the total liquidity infused into the financial system to support the economic recovery from the pandemic hit around P2 trillion in 2020.

He said the recent upward trend in inflation seen in recent months was expected to be largely transitory, reflecting the impact of weather-related shocks and higher global oil prices. Inflation in February accelerated to a 26-month high of 4.7 percent from 4.2 percent in January due to rising food prices. Diokno said that the BSP remained vigilant and ready to respond accordingly against the emergence of second-round effects, such as increased requests for increases in wages and transportation fares or high inflation expectations. “The BSP also continues to pay close attention to demand-driven inflation as the recovery becomes self-sustaining,” Diokno said. Diokno said that the BSP was actively involved in international discussions addressing central bank policy interventions and exit strategies in the post-pandemic period. “We participate in international forums on exit strategies from COVID-19 because, together with a well-coordinated national policy, joint actions at the global level can help achieve 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 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.