Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno remains confident that despite emerging new COVID-19 variants, economic recovery will be sustained to achieve the targeted 7-9 percent GDP growth this year.
“While there are challenges ahead of us, we are making good progress in terms of economic recovery. That should motivate us to persevere harder and keep moving forward,” he told a forum hosted by the Tuesday Club on Tuesday, Jan. 4.
He recommits that the BSP and its people “are all set to support and guide the economy on a steady recovery path toward growth and onward to a post COVID-19 economy that is sustainable and digitally inclusive.”
Diokno reiterated that sufficient support for the country’s recovery this year will come from expected economic developments and “significant” progress in the government’s vaccination drive.
He also said that the management of risks, the expected revitalization of key industries from government policy support and structural reforms, as well as the resumption of global economic activities, should help the Philippine economy move toward a steady recovery path.
As of mid-November the central bank infused P2.3 trillion as fresh liquidity in the financial system, equivalent to 12.5 percent of GDP.
“As you know, BSP has done quite a lot to support economic recovery,” said Diokno. “On top of policy rate cuts to record lows and reduction in the reserve requirement, the BSP did extraordinary measures to boost liquidity in the financial system ... (and) once full recovery of the economy is underway, the BSP will implement a pre-planned exit strategy,” he added.
The BSP has a continuous 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.
Diokno said the timing of the BSP’s exit strategy is a serious challenge for them. In particular, on how they communicate their future policies as forward guidance to avoid confusing the markets.
These challenges center around the BSP’s communication strategy of its policy responses, to have clarity in explaining the rationale of policy measures and the BSP’s role in the government’s anti-pandemic response.
Diokno said the BSP will aim to gradually reduce policy stimulus and it will be very careful not to unwind either too early or too late. Factors that will play a crucial part domestic demand, the virus transmission and how fast and efficient is the vaccine deployment.