The Bangko Sentral ng Pilipinas (BSP) has so far injected P2.2 trillion liquidity into the financial system as of the first week of June.

The amount, which is equivalent to 12.13 percent of the country’s GDP, came from the BSP’s liquidity-enhancing measures that it started in March last year as soon as the country went on COVID-19 containment mode.

“The big bulk of that came from BSP’s participation in the GS (government securities) market,” said BSP Governor Benjamin E. Diokno on Thursday.

The central bank’s GS purchases in the secondary market accounted for 6.16 percent of GDP. This was higher when Diokno last disclosed this number, which was 5.60 percent of GDP close to the end of 2020.

Domestic securities as part of BSP’s total assets as of end-February amounted to P1.38 trillion compared to only P225.52 billion same time in 2020 which was before the world declared a global pandemic.

Banks’ alternative use of reserve requirements (RR) as compliance by lending to micro, small, and medium enterprises (MSMEs) accounted for 1.10 percent of GDP as of the first week of April compared to 0.91 percent of GDP at the end of 2020. The temporary provision of allowing banks to lend to MSMEs as RR compliance is part of the BSP’s anti-pandemic measures.

The other liquidity-enhancing measures which are unchanged in as far as GDP contribution is the BSP’s P540 billion provisional advances to the National Government at 3.01 percent of GDP while reductions to the RR ratio accounted for 1.17 percent. The cuts in the policy rate of 200 basis points is equivalent to 0.59 percent of GDP.

The BSP has started its comprehensive review and assessment of when to reduce or scale back the size of liquidity and COVID-19 relief measures to avoid financial distress post-pandemic.

Diokno has always said that the BSP is responsible for ensuring that there is sufficient liquidity in the financial system and to prevent the tightening of financial conditions and financial disintermediation.

However, in a forum hosted by UBS recently, Diokno said the timing of the BSP’s exit strategy is a serious challenge to the independent institution. Primarily it is considered a communication challenge.

“Among the challenges we face are related to the communication aspects of our policy responses, particularly: on achieving clarity on rationale of policy measures; underscoring the BSP’s complementary role in the National Government’s pandemic response; and exit strategy,” said Diokno.

“Over the past year, the BSP has made it clear that measures such as the repo agreement with the NG were intended to complement the latter’s broad-based public health and fiscal programs against COVID-19,” he said. This means BSP’s support measures are temporary, time-bound, and capped.

“We anticipate the communication challenge related to the exit strategy from the accommodative monetary policy, as economic recovery gets underway. We want to be very clear about our approach to future disengagement from our stimulus measures,” said Diokno.

“The BSP will aim to gradually reduce policy stimulus, careful not to unwind either too early or too late. The timing of the exit strategy will primarily depend on the evolution of various factors. A crucial consideration will be the strength of domestic demand, which in turn will depend on the sustained decline in virus transmission and sufficient deployment of vaccines,” he said.