THE Philippines’s accommodative monetary policy settings continue to be appropriate amid the recent economic developments in the country, the Bangko Sentral ng Pilipinas (BSP) chief said on Thursday, amid calls by some private economists for further easing.
In a press briefing, BSP Governor Benjamin Diokno said the country continues to have “ample monetary policy space” and monetary policy remains supportive of the local economy’s path to recovery.
“The BSP’s monetary policy remains oriented towards supporting ongoing economic recovery amid supply-side pressures and the presence of economic slack as well as the downside risks to domestic demand from the impact of the protracted Covid-19 pandemic,” Diokno said.
Despite the country’s operating under an all-time low interest rate, some economists have raised the argument for further monetary policy accommodation as the economy continues to be ravaged by renewed lockdowns forced by a spike in Covid-19 cases fueled by the delta variant.
Rizal Commercial Banking Corporation (RCBC) economist Michael Ricafort, for example, said continued contraction in loan demand could still support or justify more accommodative monetary policy measures, provided inflation stabilizes from among 2-year highs recently. Ricafort said the BSP could do this by way of further cuts in banks’ reserve requirement ratio (RRR), or sustaining the key policy rate at the record low of 2 percent.
Diokno said the accommodative policy settings should be allowed to continue to work their way through the economy to bolster private consumption and investment.
He, however, acknowledged that heightened risk aversion amid risks to corporate and household balance sheets continues to dampen lending activity.
Earlier this week, the BSP said bank lending contracted by 0.7 percent in July this year, slowing down from the 2-percent fall in the previous month.
“Although business and consumer sentiment have gradually improved, domestic demand continues to be tempered by the uncertainty surrounding the pandemic, especially amid the emergence of the Delta variant and the progress of the vaccination rollout in the country,” Diokno said.
“While the BSP continues to prioritize the use of monetary policy space to provide support to economic activity amid the pandemic, the BSP also remains vigilant and stands ready to respond against emerging risks to its price and financial stability objectives,” he added.