Local borrowing rates will remain low for the foreseeable future in an effort to boost economic growth after being savaged by the coronavirus pandemic last year, according to the central bank.
In an online press briefing, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Francisco Dakila Jr. said last year’s aggressive moves by the regulator to pump trillions of cash into the financial system had also met with some success as there were now emerging “encouraging signs of recovery.”
“The BSP is of the view that prevailing monetary policy settings remain accommodative to help quicken the economy’s transition toward a sustainable recovery,” he said referring to the country’s record low interest rate levels that have been in place since late last year.
“Continuing monetary policy support, together with sustained fiscal initiatives to ensure public welfare, should help mitigate strong headwinds to growth,” said Dakila, who is sitting as the central banks officer in charge while Governor Benjamin Diokno is on medical leave.
At present, the central bank’s key overnight borrowing rate—which serves as the basis for banks in pricing their own loans—stands at a historic low of 2 percent, with the most recent reduction of 25 basis point coming only last November.
The latest in a series of cuts that have been implements since the start of the pandemic was made possible by the relatively low inflation rate regime, with the average consumer price index settling at 2.6 percent at the end of 2020, within the central bank’s target range.
Along with a slew of other regulatory relief measures and direct loans to the national government for its antipandemic spending, the central bank has so far released an estimated P2 trillion into the Philippine economy in an effort to reverse the sharpest contraction of domestic output on record.
Despite all these easing measures, the central bank believes that inflation will likely remain muted over the near term due mainly to potential disruptions to domestic and global economic activity amid the ongoing pandemic.
“While the resurgence of COVID-19 cases globally prompted the reimposition of preventive measures during the latter part of the quarter, optimism over the delivery of vaccines has lifted market confidence, supporting improved prospects for global growth,” Dakila said.
On the domestic front, BSP believes the only threat to the low inflation are supply—side risks such as weather disturbances and rising global crude oil prices.
The central bank OIC emphasized that regulators were ready to do more if necessary to boost the country’s growth.
“Looking ahead, the BSP remains committed to deploying its full range of monetary instruments and regulatory relief measures as needed in fulfillment of its mandate to promote noninflationary and sustainable growth over the long term,” he said.