BSP’s 2% policy rate may keep until 2H next year

Published November 25, 2021, 4:36 PM

by Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) will likely wait to see the next three or four quarters’ GDP performance before it could take any policy actions.

BSP Governor Benjamin E. Diokno said Thursday, Nov. 25, that the timing of monetary policy normalization will depend on the next few quarters’ data outturns, which would imply that the current two percent benchmark rate will stay put until the second or third quarter of 2022. The central bank policy rate has been unchanged since November 2020.

BSP Governor Benjamin E. Diokno

“Keeping a patient hand on the BSP’s policy levers, along with appropriate fiscal and health interventions, will keep the economic recovery more sustainable over the next few quarters,” said Diokno.

The data-dependent BSP will look to the “evolution of various factors” before deciding on the timing and circumstances to unwind its pandemic-induced support measures such as inflation and output outlook, liquidity and credit conditions, financial sector risks, state of public health, and global developments and spillovers, said Diokno.

“When domestic developments warrant a scale-down of policy support as economic recovery gains traction, the BSP will ensure a smooth transition in winding down its time and state-bound measures,” he said during his regular online press briefing.

“The BSP will consider the need to continue supporting economic recovery, while also guarding against any emerging risks to its price and financial stability objectives. In particular, the BSP will continue to coordinate closely with fiscal authorities to ensure enough policy support remains for the economic recovery to gain traction,” Diokno added.

Monetary policy cushions the economy from COVID-19 uncertainty and shocks.

Diokno said the BSP has “decisively pursued an accommodative monetary policy stance to ease financial market stress and provide support to domestic demand” as well as to ensure a functioning of credit market and the financial system.

The BSP has done the following as pandemic response: cut interest rates by 200 basis points in 2020; scaled down liquidity absorption operations; reduced banks’ reserve requirement by 200 basis points; and implemented extraordinary measures such as a P540 billion cash advance to the National Government.

The BSP’s current accommodative policy settings provide stimulus to domestic demand by boosting private consumption and investment.

Diokno said earlier this month that GDP will exceed six percent which is above the target of 4-5 percent. He said an above-target GDP “suggest that the country’s real output will revert to its pre-pandemic level by the third quarter of 2022, if not sooner.”

Diokno said the decelerating inflation trend is enough reason for the BSP “to be patient” and to “continue its accommodative monetary policy stance given the current domestic, external and financial developments.” The inflation rate in October declined to 4.6 percent from September’s 4.8 percent and from August’s 4.9 percent. It was in the lower band of the BSP’s October inflation forecast range of 4.5 percent to 5.3 percent. Stable prices of meat and fish eased inflation pressures in October.

Diokno reiterated that the Monetary Board will stick to a two-percent benchmark rate for the rest of the year in aid of sustaining the growth momentum.