MANILA, Philippines—The Bangko Sentral ng Pilipinas (BSP) on Thursday (Sept. 9) assured financial markets that borrowing costs will remain low to aid the country’s economic recovery amid worries that more influential monetary regulators overseas are preparing to raise interest rates to stave off inflation.
At an online briefing, BSP Governor Benjamin Diokno issued the latest “forward guidance”—outlining the likely future path of monetary policy based on the latest economic data and assessment—and reiterating the agency’s “commitment towards preserving adequate policy support for as long as necessary to ensure the sustainability of economic recovery.”
“The emerging outlook of a manageable inflation and nascent growth allows the BSP to maintain its accommodative monetary policy stance to help strengthen domestic demand and support business and consumer confidence, thereby facilitating the growth momentum to gain further traction in the coming months,” he said.
Diokno noted, in particular, that the anticipated normalization in US monetary policy has led to some concerns regarding its financial market implications, particularly for emerging economies.
Nevertheless, US monetary authorities have been providing appropriate signals to guide financial market expectations, allowing market participants to better price-in potential adjustments in monetary conditions in the world’s largest economy and avoid unnecessary and disruptive market reactions.
More importantly, the Philippine economy is also well-placed to weather an environment of tighter global financial conditions in the event of US monetary tightening, given the economy’s macroeconomic fundamentals and the continued availability of policy space from authorities, Diokno said.
Against a backdrop of a more challenging global economic environment, he said the BSP remains focused on preserving the appropriately supportive stance of monetary policy amid emerging risks to the recovery outlook, including the possible spillovers from external developments that may affect domestic inflation dynamics, capital flows, and the exchange rate.
“The BSP will continue to carefully communicate its future policy intentions to reduce uncertainty and foster a quicker and durable recovery,” the BSP chief assured.
Despite the agency’s repeated reassurances, however, Philippine bank lending contracted for the eighth consecutive month in July as borrowers and lenders continued to shy away from the debt market, but the BSP held out hope for a possible reversal noting that the rate of decline in loans is slowing.
Preliminary data showed that outstanding loans of universal and commercial banks, excluding banks’ short term deposits with the regulator, declined by 0.7 percent year-on-year in July after falling by 2 percent in June.
On a month-on-month seasonally-adjusted basis, outstanding universal and commercial bank loans, net of short term bank deposits, rose by 0.5 percent.