Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno reiterated on Thursday, May 12, the BSP’s preparedness to adjust policy rates to arrest the rise in inflation and ensure the growth trajectory is sustained.
“The BSP stands ready to adjust our monetary policy settings, should we see material risk of these supply-side pressures spilling over to the demand side,” said Diokno.
The BSP’s Monetary Board will have its monetary policy meeting next week, May 19. The central bank will consider the 8.3-percent gross domestic product (GDP) growth recorded in the first quarter -- higher than what the market expected –when it meets next Thursday.
Diokno said the latest GDP growth number is a confirmation of the economy’s resilience due to a whole-of-government approach which “required bold and decisive fiscal and monetary actions to remain in sync.”
“On the monetary side, the historic-low key policy rate has supported credit activities, while our time-bound regulatory and operational relief measures allowed banks to continue performing the important role of financial intermediation throughout the pandemic,” he said.
According to Diokno, the “robust growth performance of the economy in the first quarter, which beat analysts' expectations, along with other favorable macroeconomic indicators, helps fulfill the BSP’s vision of a post-COVID Philippine economy that is stronger, more technologically advanced, more inclusive, and more sustainable.”
“Moving forward, the BSP will continue to work with the national government to keep the economy on a robust growth trajectory and to address headwinds such as price pressures,” he added.
Diokno also said that they continue to back the government’s implementation of non-monetary measures to address supply-side pressures such as boosting importation of specific food items experiencing price spikes and direct subsidies to vulnerable sectors.
The Philippine Statistics Authority reported on Thursday that the economy has now surpassed the pre-pandemic growth in the first quarter with the GDP expanding by 8.3 percent versus 7.8 percent in the last quarter in 2021. The latest GDP is also an improvement from the 3.8 percent contraction same time last year.
Diokno has always said that the monetary policy space will continue to support the economy by balancing inflation and growth outlook to ensure the Philippines’ continued favorable location as an investment site.
Diokno, who has announced that the Monetary Board will likely adjust policy rates by the second half of 2022 and possibly by June, said they are mindful that with a recovering economy, BSP anti-pandemic policies will gradually return to normal and “the extraordinary measures will need to be scaled back.”
The market expects the BSP to hike rates by as much as 75 basis points this year, or to raise the overnight repurchase rate gradually to 2.75 percent from two percent. The BSP’s key rate has been frozen at its current level since November 2020 since inflation continued to be manageable. However in April, inflation rate increased to 4.9 percent from four percent in March. The BSP expects inflation to remain above-target levels over the near term because of volatility in global oil and non-oil prices as an impact of the Russia-Ukraine war. The BSP forecasts a 2022 average inflation of 4.3 percent, above the two percent to four percent target.