THE economy must meet three criteria before the country’s central monetary authority decides to pull back its aggressive monetary stimulus that was deployed at the height of the pandemic, according to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno.
He listed the three conditions for monetary policy unwinding as a clear and solid path to economic recovery, a manageable inflation environment and a consistent decline in Covid cases.
“The BSP will withdraw monetary support only when there are indisputable signs of solid economic recovery amid a manageable inflation environment, as well as a sustained downtrend in community transmission of the virus,” Diokno said in a recent speaking engagement.
The Philippine economy declined by 4.2 percent in the first quarter of the year, prompting several international agencies such as the International Monetary Fund (IMF), the World Bank, and the Asean+3 Macroeconomic Research Office (AMRO) to cut their growth forecasts of the country.
The IMF forecasts a 5.4-percent growth for the country in 2021; the World Bank puts it at 4.7 percent; while AMRO has a more optimistic view at 6.4 percent.
For inflation, meanwhile, the growth of consumer prices in June slowed at 4.1 percent. It is, however, still above the government’s annual target of 2 to 4 percent on average for the year.
The Department of Health (DOH) reported on Wednesday that a total of 4,289 new cases were added to the country’s Covid-19 case numbers, putting the total at 1,450,110 as of July 7.
In 2020, the BSP cut the overnight borrowing rate by 200 basis points from 4 percent to a record low of 2 percent to support the economy.
It has also cut the reserve requirement further to 12 percent from 14 percent to free up funds for lending to businesses and households.
In sum, the BSP has injected P2.2 trillion into the financial system, equivalent to about 12 percent of GDP as of June 10.
“When it comes to exit strategy, the BSP recognizes the necessity of carefully balancing the need to ensure sustainability of recovery and the need to guard against risks to the BSP’s price and financial stability objectives,” Diokno said.
“We recognize that economic recovery is still in its nascent phase. As such, we will keep our monetary policy supportive of growth and allow previous monetary easing to work its way to the economy,” the governor added.