BSP focuses more on PH-centric risks vs external

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the Monetary Board policy actions will focus more on domestic outlook risks and not so much on external factors including the US Federal Reserve’s policy normalization.

“We would like to emphasize that while the BSP takes into consideration the policy actions of major central banks, including that of the Fed, the BSP does not need to recalibrate its policy setting based on these external factors,” said Diokno during his weekly “GBED Talks” online.


Diokno said the BSP’s decisions “are based primarily on domestic conditions, particularly the outlook for inflation and demand.”

“In this highly liquid, low-interest rate environment, the BSP’s accommodative monetary policy remains anchored on our assessment of a manageable outlook for inflation. Nevertheless, major external developments such as the Fed’s policy actions, may be taken into account as factors in driving capital flows to emerging economies, including the Philippines,” said Diokno. “As some emerging markets continue to face challenges in vaccination and renewed COVID-19 surges, policy normalization in some advanced economies may proceed ahead and lead to tighter external financing conditions while emerging market maintain policy support,” he added.

Diokno said monetary policy will continue to be supportive until the economy shows more definite signs of sustained recovery. The economy is expected to recover in 2021 and 2022.

He also reiterated that the timing of when to unwind monetary stimulus will be crucial and will be communicated properly to the market.

“The timing as well as the conditions under which the BSP will start unwinding monetary stimulus will continue to be guided by the domestic inflation and growth outlook over the medium term and the risks surrounding such outlook, a well as a broad set of economic and financial indicators,” said Diokno. “Broadly speaking, the BSP can consider withdrawing monetary support when there are indisputable indications of a strong recovery in real sector activity, as well as a sustaine downtrend in community transmission of the virus.”

Since the outbreak of the COVID-19 crisis in early 2020, the BSP’s policy and liquidity support measures have been aimed at cushioning the impact of the pandemic and preserving favorable financing conditions.

“Amid this, the BSP’s monetary policy response and timing of implementation will continue to be guided by our inflation and growth outlook over the policy horizon and the risks surrounding such outlook, including developments on the external front and domestic demand conditions,” said Diokno.

He added that “such data-dependence in policymaking will allow the BSP to avoid the premature withdrawal of policy stimulus.”