The Bangko Sentral ng Pilipinas (BSP) will likely consider the withdrawal of COVID-19 monetary and banking policy interventions after mid-2022 when the economy is expected to have returned to pre-pandemic growth levels, and assuming herd immunity against the virus has been achieved around the same time.
When asked if the BSP could consider an exit strategy within the year, BSP Governor Benjamin E. Diokno said: “The short answer is no.”
He explained that “it is too early to talk about an exit strategy at this time. We share the view that 2021 or this year will be a recovery year and that the economy won’t be back to its 2019 level in the aggregate until perhaps the second half of 2022. Of course that prognosis is subject to upward and downward risks.”
“(But) having a carefully formulated exit strategy for policy measures against the effects of COVID-19 enables the BSP to have a clear guide to future actions when the economy fully recovers and growth becomes sustainable,” said Diokno during his weekly press briefing.
“That said,” he added, “the BSP monetary policy making remains data driven, and the timing of the exit from stimulus (programs) primarily depend on the future trajectory of domestic inflation and economic growth. At present amid the manageable inflation outlook, subdued demand pressures and within target inflation expectations, the BSP has scope to preserve monetary policy support to the economy to help strengthen overall demand and shore up market confidence.”
Diokno said that when the economy “reaches full recovery” the BSP will “aim to implement (and plan) a strategy for the withdrawal of the accommodative monetary policy measures, taking care to ensure the sustainability of recovery while also guarding against any emerging threats to (the BSP’s) price and financial stability objectives.”
The BSP chief reiterated that the timing of its exit strategy will be based on economic numbers and data, especially inflation and GDP growth. He also said that rising inflation will not necessarily” trigger” an exit, as far as BSP is concerned. “There are non-monetary policy measures that the government can do and is doing to directly address the supply side factors.” Still, he said the rising COVID-19 cases could affect domestic demand and overall consumer and business confidence. “This downside risk to inflation can be directly addressed by ramped up public health measures.”
Diokno said that since inflation outlook remain manageable, and demand-side pressures are still muted meaning there are no signs of second-round effects such as wage and transport fare hikes, the BSP will give priority for an accommodative stance to support GDP and to ensure recovery will become self-sustaining.
In the meantime, as far as exit strategy planning is concerned, Diokno said the BSP has been actively taking part in international discussions and meetings for when central banks could safely withdraw policy interventions and implement exit strategies in the post-pandemic period.
“We participate in international fora on COVID-19 exit strategies because alongside a well-coordinated national policy, joint measures at the global level can help bring about a stronger and more sustained economic recovery,” he said. “Like many central banks, the BSP recognizes the need for a carefully-formulated exit strategy from the liquidity-enhancing policy measures against the effects of COVID-19. Such an exit strategy serves as a framework to guide the actions of the central bank and anchor public expectations.”
Diokno said central banks’ exit strategies are “grounded” on domestic macroeconomic conditions and what he called “institutional characteristics.”
As for the Philippines, he said the “timing of the BSP’s exit strategy is crucial and will primarily depend on a number of factors such as the outlook on inflation and output, liquidity and credit conditions, financial sector risks, state of public health, as well as global developments and spillovers.”
“Like many central banks, the BSP recognizes the importance of thinking ahead and having a well-timed disengagement strategy. We can think of three important reasons for this. First, there is a need to maintain monetary policy accommodation as necessary while remaining vigilant against emerging threats to price and financial stability objectives,” he said.
“Second, an exit strategy serves as a framework to guide central bank actions and guide public expectations. (And) third, policymakers need to determine the appropriate timing for the withdrawal of monetary stimulus, that is to avoid doing it too early or too late,” said Diokno.