Monetary Board’s ‘steady policy rates vital to economic recovery

Published May 18, 2021, 12:04 AM

by Manila Bulletin

Last May 12, a day after the Philippine Statistical authority (PSA) reported that the country’s gross domestic product (GDP) contracted by 4.2 percent in the first quarter of the year, the Monetary Board (MB) of the Bangko Sentral ng Pilipinas  (BSP) “decided to maintain the interest rate on the BSP’s reverse repurchase policy at 2.0 percent.” Moreover, the BSP said: “The interest rates on the overnight deposit and lending facilities were kept at 1.5 percent and 2.5 percent, respectively.” Previously this year, on March 25 and February 11, the MB promulgated a similarly worded resolution.

In a press statement, the MB said it was keeping “policy settings steady” considering that price pressures on food commodities are abating with improved weather conditions, the impact of Executive Orders No. 128 and 133, s. 2021, and the implementation of direct non-monetary interventions to alleviate supply constraints.”

Executive Orders No. 128 and 133, s. 2021, refer to President Duterte’s issuances liberalizing pork imports by raising the minimum access volume (MAV) to offset the reduction in pork supply arising from the outbreak of African Swine Flu in many regions of the country.   Targeted at 2 to 4 percent for 2021, the inflation rate has slowed somewhat to 3.9 percent, down from the previous 4.2 percent.

Despite the fact that GDP growth has been negative for five consecutive quarters since the onset of the pandemic last year, the MB remains upbeat about the economy’s recovery prospects.  Cited as upside factors are the ramping up of vaccination efforts and the effect of government’s “targeted fiscal interventions”.  These include the Bayanihan fiscal stimulus packages totaling P595.6 billion and the enactment of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act and the Financial Institutions Strategic Transfer (FIST) Act to help dispose of non-performing assets and non-performing loans of banks and financial institutions.

Cognizant that the pandemic has greatly accelerated the pace and scope of digital transformation, the BSP has also pushed its financial inclusion initiatives.  According to BSP Governor Benjamin Diokno, this is in line with the goal to “shift from a cash-heavy to a cash-lite economy.”  As envisioned in its Digital Transformation Roadmap for 2020 to 2023, the BSP aims to transform 50 percent of the total retail volume to digital payments and 70 percent of Filipino adults to be “financially included” in terms of digital literacy.

For the BSP’s monetary policy initiatives to achieve full fruition, these must be aligned with those of the national government’s fiscal measures.  These must respond in a timely manner to quickly changing conditions, such as sudden surges in disease transmission.

In the ultimate analysis, the confluence of government efforts must result in enabling Juan de la Cruz to get back to productive livelihood and employment so he could provide food on the table for his family – as all members work with their neighbors in containing the pandemic while waiting for a speedier and more efficient COVID-19 vaccine rollout.