The Philippines: BSP eyes careful exit from easy policy

• AS CENTRAL BANKS around the world have started taking steps to unwind policy support, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the timing of the exit from its easy policy “remains very uncertain” but assured the transition would be done smoothly.
• “Given the nascent economic recovery, the priority for the BSP is to ensure the sustainability of the recovery and prevent long-term scarring effects,” Diokno said.
• “We would like to emphasize that the timing of the exit remains very much uncertain at this time. The threat of further Covid-19 infections continues to pose a downside risk to both growth and inflation in the coming months,” he added.
• Mr. Diokno said the BSP’s approach will be “outcome-based” and not a calendar-based exit strategy. He said this will depend on the evolution of various domestic factors including liquidity and credit dynamics, financial sector risk and the state of public health as well as evolving global developments and potential spillovers.
• In his presentation, Mr. Diokno outlined the BSP’s exit strategy, which include returning-to-normal operations, unwinding liquidity provision, reducing monetary accommodation, and preparing for the next crisis.
• Under the strategy’s reduction of monetary accommodation component, there will be an eventual raising of interest rates “when prospects for the economy have materially improved.”
• Meanwhile, the central bank approved another PHP300bn loan to the National Government to support the economy, Mr. Diokno said. The amount is lower than previous direct advances extended, reflecting the BSP’s approach to gradually unwind support measures rolled out during the pandemic.
• National Treasurer Rosalia V. de Leon in a Viber message said the loan terms will be the same — payable within three months, with possible extension for another three months. This latest budgetary support is the fifth time the BSP extended direct advances to the National Government since the pandemic.
• The first one amounted to PHP300bn in Mar 20 and the rest were worth PHP540bn each in Oct 20, Jan 21, and Jul 21. Asked whether he sees further reduction in budget support within the year, Mr. Diokno said: “That is our expectation but that will depend on Department of Finance.”
• The BSP chief explained that state revenues are picking up with the reopening of the economy, although the spread of the Omicron variant and the revert to Alert Level 3 in Metro Manila have yet to be considered in this projection.
• The Monetary Board will have its first policy review on 17 Feb 22.

External Link : https://www.bworldonline.com/bsp-eyes-careful-exit-from-easy-policy/

External Link : https://www.philstar.com/business/2022/01/07/2152220/bsp-trim-funding-support-national-government