THE Bangko Sentral ng Pilipinas (BSP) should not be expected to move its monetary policy levers solely because of external developments, including the US Federal Reserve’s potential normalization, the Central Bank governor said on Thursday.
In a press briefing, BSP Governor Benjamin Diokno said while other central banks, including the Fed, could potentially be considering normalizing their monetary policy stance, the Philippines’s monetary policy “should remain supportive until recovery is firmly under way.”
“The timing as well as the conditions under which the BSP will start unwinding monetary stimulus will continue to be guided by the domestic inflation and growth outlook over the medium term and the risks surrounding such outlook, as well as a broad set of economic and financial indicators,” Diokno said.
“Broadly speaking, the BSP can consider withdrawing monetary support when there are indisputable indications of a strong recovery in real sector activity, as well as a sustained downtrend in community transmission of the virus,” he added.
The BSP has been keeping its record low monetary policy rate steady for the entire year, even amid inflation pressures earlier this year.
“We would like to emphasize that while the BSP takes into consideration the policy actions of major central banks, including that of the Fed, the BSP does not need to recalibrate its policy setting based on these external factors. The BSP’s decisions on the monetary policy stance are based primarily on domestic conditions, particularly the outlook for inflation and demand,” Diokno said.
The governor, meanwhile, said that major external developments, such as the Fed’s policy actions, may be taken into account as factors in driving capital flows to the Philippines.
“As we monitor the developments on the global front, the Philippines is still in a favorable position to withstand adverse shocks that may emanate from abroad, including the potential spillover effects of the unexpected tightening in US monetary policy,” the governor said.
“We will be able to navigate tightening global financial conditions, given a manageable fiscal position, stable investment grade credit rating, and robust external payments position,” he added.
The BSP is expected to have their next monetary policy meeting on August 12. This will be their fifth monetary policy meeting for the year.
Image credits: Photo courtesy Bangko Sentral ng Pilipinas