Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said they continue to have “ample monetary policy space” and reiterated that current accommodative settings remain appropriate but that it will take time for policy responses to work its way through the economy and stimulate private consumption and investment.
“The BSP will continue to ensure that policy responses will not lead to excessive inflation and trigger financial stability risks,” said Diokno during his weekly “GBED Talks”.
“When domestic developments warrant a recalibration or withdrawal of policy support, the BSP will ensure a smooth normalization of its time- and state-bound measures,” he added.
Diokno said current accommodative policy settings represent appropriate stimulus to demand.
“The BSP’s monetary policy remains oriented towards supporting ongoing economic recovery amid supply-side pressures and the presence of economic slack as well as the downside risks to domestic demand from the impact of the protracted COVID-19 pandemic,” he also said.
Diokno said they continue to monitor the heightened risk aversion amid risks to corporate and household balance sheets. “However, while liquidity remains ample, bank credit remains dampened by heighted risk aversion,” he said.
The BSP noted that business and consumer sentiment have gradually improved but domestic demand continues to be tempered by the uncertainty surrounding the pandemic, especially amid the emergence of the Delta variant and the progress of the vaccination rollout in the country.
Diokno again stressed that fiscal support remains critical to sustain economic momentum and prevent long-term scarring.
The BSP has injected P2.2 trillion of extra liquidity in the financial system since the pandemic began. There are other policy support to ensure the economy will not be overly damaged due to the lockdowns.
These are measures designed to encourage market confidence by making available low cost credit resources, such as cuts in the policy rate and the reserve requirement, said Diokno. Last year, the BSP cut the benchmark rate by 200 basis points and has kept the policy rate low at two percent since November 2020.
“Lower policy rate was meant to influence banks to reduce their own lending rates, thereby promoting credit-taking activities (while) lower reserve requirement increased the volume of loanable funds,” said Diokno.
Diokno earlier called for “cautious optimism” after the government downgraded its 6-7 percent GDP forecast this year to 4-5 percent, taking in the impact of the current Delta variant lockdown.
The BSP’s accomodative monetary policy has proved helpful with GDP recovering in the second quarter with a significant 11.8 percent growth.