Bangko Sentral ng Pilipinas (BSP). RYAN LEAGOGO/INQUIRER.net FILE PHOTO
MANILA, Philippines — The central bank will keep interest rates low for as long as possible to support the country’s economic recovery from the COVID-19 pandemic, the head of the central bank said on Monday.
In a speech delivered during the Sulong Pilipinas 2021, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the economy is at the tail end of the crisis, with the rollout of the vaccination program ongoing.
At the same time, he said the BSP recognizes that economic recovery is still in its early stage and, as such, expansionary monetary support remains warranted.
“We recognize that the economy is still in its nascent recovery phase,” he said. “The accommodative monetary policy settings provide significant stimulus to demand and should be allowed to continue to work their way through the economy to bolster recovery in private consumption and investment.”
Since the onset of the pandemic last year, the BSP has infused over P2 trillion in liquidity into the financial system, equivalent to 11 percent of the country’s gross domestic product.
Among the BSP’s long list of COVID-response measures were the series of policy rate cuts last year totaling 200 basis points. These moves were meant to influence banks to lower their lending rates as well, thereby encourage credit taking to support economic activities.
The BSP also cut the reserve requirement for universal and commercial banks, as well as for smaller banks last year.
The economy contracted by 9.6 percent in 2020 as a result of the necessary quarantine measures, which restricted mobility.
Diokno said “green shoots” have been emerging since the third quarter of 2020, including improved manufacturing activity. However, the recent surge in COVID-19 cases meant there is no room for letup in efforts toward economic recovery.
“As the Philippines continues its battle against COVID-19, the BSP remains one with the government and the entire Filipino people in dealing with this crisis head-on and in pushing the economy toward full recovery,” he said, reiterating that he expects the impact of the COVID-19 crisis on the Philippine economy to be transitory.
“Our fundamentals remain solid, and these will carry us through full recovery,” Diokno said.
The central bank chief’s reassurance that monetary policy will remain accommodative over the near term comes even as the regulator had begun formulating exit strategies to wean the Philippines away from a historic low-interest rate regime once the COVID-19 pandemic ends.
Diokno earlier said that enforcing well-timed monetary policy measures when the economy recovers will help keep inflation in check and financial markets stable.
Of particular concern to the BSP is how to unwind the liquidity it has unleashed since the start of the public health crisis in a manner that would neither derail recovery or cause the economy to overheat.