The Bangko Sentral ng Pilipinas has nurtured the economy throughout the pandemic episode. It kept the borrowing cost low to support the economy recover from the impact of the global health crisis and keep many businesses afloat.
It has remained prudent in its monetary policies and is not ready soon to abandon its stimulus measures and prepare for an exit strategy. For the nth time, BSP Governor Benjamin Diokno warns the onset of new COVID-19 variants may threaten the sustained recovery of the economy.
“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,” said Diokno.
“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 its pandemic-induced interventions would guided by the inflation and growth outlook over the medium term and the risks surrounding such outlook.
Consistent with the BSP’s data-dependent approach to policymaking, he said the monetary authorities will continue to monitor the evolution of several domestic factors, as well as 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.
He said the challenge lies in striking a delicate balance between providing adequate stimulus to the economy and preventing the build-up 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 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 make individuals and firms productive.
The BSP extended provisional advances―a temporary arrangement between the BSP and the national government―to give the government access to ample cash resources while revenue generation is weakened and fulfillment of the borrowing program is challenged by the scale and the unpredictability of financial markets amid the pandemic.