BANGKO Sentral ng Pilipinas Governor Benjamin Diokno said the BSP’s next moves to wind up their accommodative monetary policy will still be driven by the next set of economic data globally and locally.
In a recent speaking engagement, Diokno reiterated that any move to lift time-bound measures put in place to support the economy during the pandemic will be carried out based on latest economic data, and is “not tied to any calendar date.”
The exit strategy will also be guided by the inflation and growth outlook over the medium term, the country’s public health status, and the domestic and global risks to the economy, he added.
“The balancing act requires a well-planned, well-calibrated, and well-communicated exit strategy to avoid causing substantial market volatility, reduce potential spillovers, and sustain the recovery momentum,” Diokno said.
In its monetary policy setting just last week, the BSP hiked its rates for the first time since the pandemic, as the country’s monetary authority tries to get a hold of the rising inflation expectations in the country.
This is the first time that the BSP hiked its monetary policy rates since implementing an ultra accommodative monetary policy stance to keep the economy afloat during the pandemic.
It is also a month earlier than Diokno’s previous forward guidance of starting to hike monetary policy rates in the second half of this year.
“In deciding to raise the policy interest rate, the Monetary Board noted that the latest baseline forecasts have further shifted higher since the previous monetary policy meeting in March, indicating that elevated inflation pressures could persist over the policy horizon,” Diokno earlier said.
Rizal Commercial Banking Corp. (RCBC) chief economist Michael Ricafort, in his analysis after the monetary policy meeting, said policy rate hikes in the coming months are likely needed to address risk of second-round inflation effects after the approved minimum wage hikes and possible hike in transport fares, all of which would lead to higher prices of other affected goods and services in the economy.
“It is a tough and delicate balancing act in managing the monetary policy, going forward, to prevent inflation from spiraling further, while at the same time, helping sustain the fragile economic recovery prospects still reeling from the adverse effects of the pandemic that could be jeopardized by any premature tightening of monetary policy that may not be necessarily effective in curbing supply-side inflationary pressures,” Ricafort said.