On eve of MB meet, BSP says ready to deal with risk factors

THE Bangko Sentral ng Pilipinas (BSP) governor reiterated his readiness to address the rising in ation pressures should signs of spillovers start to show.

In a press brie ng on Wednesday, BSP Governor Benjamin Diokno said that while their view of local in ation dynamics remains “manageable,” the Central Bank is ready to consider rewinding actions should the growth of local consumer prices get out of hand.

“e BSP remains vigilant against upside risk factors that may threaten the achievement of the in ation target,” Diokno said.

“Should these factors persist and show signs of spilling over to the demand side in the form of increased clamors for wage and transport fare hikes or elevated in ation expectations, then the BSP will assess the need for an appropriate monetary policy response,” he added.

Diokno also told reporters that the BSP has actively taken part in international discussions that tackle Central Banks’ policy interventions and exit strategies in the post-pandemic period.

e governor said planning ahead for when the economy reaches full recovery is important, as it is crucial for the BSP to implement a pre-planned strategy for the withdrawal of policy stimulus to avoid unwinding policy measures either too early or too late.

“e timing of the BSP’S exit strategy is crucial and will primarily depend on a number of factors such as the outlook on in

ation and output, liquidity and credit conditions, nancial sector risks, state of public health, as well as global developments and spillovers,” Diokno said.

At present, Diokno said the manageable in ation outlook continues to allow the BSP room to maintain an accommodative policy stance, which remains “critical alongside health and scal policy measures” in supporting economic activity and market con dence during the recovery phase.

International fora that the BSP is currently participating in includes: the Bank of International Settlements (BIS) Small Open Economy Virtual Conference, the Asia Paci c Economic Conference (APEC) Finance and Central Bank Deputies’ Meeting, the Executives’ Meeting of East Asia -Paci c Central Banks (EMEAP) and the Asean+3 Macroeconomic Research O ce (AMRO) Finance and Central Bank Deputies’ Meeting. Issues usually discussed, according to Diokno, include the winding down of debt relief measures, while transitioning to more targeted support as economic conditions improve; importance of adopting careful strategies for the exit from the policy support; and longer-term challenges in the post-pandemic period.

e BSP has implemented one of the most aggressive monetary policy responses to the economic disruption caused by Covid-19 in 2020.

In total, the Central Bank has cut its rates by 200 basis points—25 basis points in February, 50 basis points in March, another 50 basis points in an o schedule Monetary Board meeting in April, a further 50 basis point cut in June and the latest 25-basis-point cut in November—to bring down the Philippines’s benchmark rate to its alltime low of 2 percent.

However, the BSP has been maintaining its monetary policy stance in recent meetings as in ation continues to creep upwards.

e BSP is expected to hold its monetary policy setting again on ursday, March 25.

Bianca Cuaresma