BSP to keep interest rates low until economic recovery firmly underway, says Diokno

MANILA, Philippines—The Philippines will remain awash with cheap cash to help encourage growth until clear signs emerge that the economy was well on its way to recovery from its deepest postwar slump, according to the head of the Bangko Sentral ng Pilipinas (BSP).

At an online briefing, BSP Governor Benjamin Diokno also sought to reassure markets that any monetary policy tightening by the US Federal Reserves—the world’s most influential central bank—can be withstood by the local financial system.

“In the Philippines, monetary policy should remain supportive until recovery is firmly underway,” he said.

The BSP chief added that the timing and the conditions under which the regulator will start unwinding some P2.2 trillion worth of monetary stimulus rolled out during the pandemic will continue to be guided by domestic inflation and growth outlook over the medium term.

With signs of broad improvement in economic performance and a relatively more manageable pandemic situation in some economies, markets expect central banks, including the US Fed, to consider a possible shift to policy normalization.

“Amid this, the BSP’s monetary policy response and timing of implementation will continue to be guided by our inflation and growth outlook over the policy horizon and the risks surrounding such outlook, including developments on the external front and domestic demand conditions,” Diokno said.

“Such data-dependence in policymaking will allow the BSP to avoid the premature withdrawal of policy stimulus,” he added.

Inflation is projected to be within target over the policy horizon as recent price pressures from transitory supply factors were mitigated by non-monetary measures as well as downward pressure from the current economic slack.

“We continue to have ample external liquidity buffer to withstand adverse external shocks, including the possibility of an earlier than anticipated US policy rate hike,” Diokno said.

“Continued progress with vaccination and health measures alongside fiscal policy support also underpin our projection of favorable economic growth prospects once we enter the post-pandemic phase,” said the BSP chief.

Moving forward, he said the BSP will remain vigilant against emerging risks to the outlook for inflation and growth, including the possible spillover effects from external events.

Diokno added that the BSP also stands ready to adjust its monetary policy settings as necessary to ensure the achievement of its primary mandate of price stability conducive to a balanced and sustainable economic growth.

TSB