BANGKO Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said they are keen on giving more time for the recent monetary policy actions to work their way into the economy before pulling them out as the economy recovers.
Diokno made the statement on Monday at the government’s Sulong Pilipinas Economic Development and Infrastructure Clusters Forum.
The governor said that while the economy is “at the tail end of the crisis,” 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,” Diokno 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,” the governor added.
The BSP has kept its record-low overnight reverse repurchase rate at 2 percent for three consecutive meetings since December 2020. This is despite the acceleration in the country’s inflation, which the BSP projects would overshoot the ceiling of government targets for this year.
In 2020, the BSP rate cuts reached a total 200 basis points for the year to bring the rates to an all-time low. The BSP also so far infused over P2 trillion in liquidity into the financial system, equivalent to 11 percent of the country’s gross domestic product (GDP). It has also cut the reserve requirement for universal and commercial banks.
Diokno said the BSP will look into “certain factors” before pulling out their accommodative monetary policy stance.
“What are the factors that we are going to look into before we disengage? I think it makes sense that we look whether the growth is sustainable, whether there is traction. So that’s growth targets, inflation of course and employment. Those are the things that we consider,” Diokno said.
The economy contracted by 9.6 percent in 2020 as a result of the necessary quarantine measures, which restricted mobility.
Asked if he is still open to cut the banks’ reserve requirement ratios (RRR), Diokno said he believes cuts are still “on the table” but believes there is still enough liquidity currently in the system to support growth.
“The reserve requirement ratio will continue to be data-dependent, guided primarily by the outlook on inflation. At this point, there is enough liquidity in the system, but manageable inflation environment provides further room for reductions in our RRRs,” the governor said.
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