Central bank credibility is intact – BSP chief

Published October 7, 2020, 5:00 AM

by Lee C. Chipongian

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said Tuesday that the pre-emptive monetary responses which it has been doing since the coronavirus outbreak began will continue to keep confidence in the BSP which is “resolute in its intention to provide timely and sufficient support to the economy, as needed.”

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno. (Bloomberg)
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno. (Bloomberg file photo)

Diokno, the BSP’s fifth governor, reiterated yesterday after the government released a low inflation for September of 2.3 percent from July’s 2.4 percent that the central bank has an ongoing review to improve monetary policy transmission and to ensure it will support economic recovery after a pandemic-induced recession.

He said the BSP which is ready to use its many policy arsenals to cushion the impact of COVID-19 to the economy will “continue to evaluate the transmission of BSP’s monetary actions to the economy along with recently approved fiscal measures to address the economic costs of the public health crisis.”

The September inflation of 2.3 percent was within the central bank’s forecast range of 1.8 percent to 2.6 percent.

“The latest result is consistent with BSP’s assessment that inflation is expected to remain benign over the policy horizon with the balance of risks tilting toward the downside due largely to the impact on domestic and global economic activity of possible deeper economic disruptions caused by the coronavirus pandemic,” said Diokno. He also said the “significant monetary easing and liquidity enhancing measures done by the BSP and the timely implementation of fiscal measures in the Bayanihan 2 Act are seen to provide sufficient support to economic recovery in the coming months.”

Diokno reiterated that as lockdown protocols are relaxed further, the economy is gradually improving as seen in the manufacturing and external sectors.

“Extraordinary times call for extraordinary measures,” he said in a Citi Macro Conference online forum on Monday. “The BSP decisively implemented a wide range of policy responses, including unprecedented ones, to squarely deal with the crisis.”

Among BSP’s contribution to anti-COVID-19 response was to be one of the first central bank in the world to cut policy rates as early as February as a pre-emptive action against the health crisis. By June, the BSP has reduced the key overnight rate by 175 basis points.

During its last Monetary Board policy meeting, on October 1, the BSP kept its key rate unchanged as it waits out the fruits of monetary transmission which has a lag of nine to 12 months. It also lowered its inflation forecasts for 2020, 2021 and 2022.

Besides using its existing toolkits to help the economy including cutting reserve requirement ratio to release extra cash to the banking system while on lockdown, the BSP also provided provisional advances to the government, purchased government securities in the secondary market, and diverted funds to the micro, small and medium enterprises sector by implementing several measures that are pro-MSMEs.