The Philippines: Pandemic clouds BSP exit strategy

  • THE TIMING of the Bangko Sentral ng Pilipinas’ (BSP) exit strategy remains clouded by the uncertainty over the coronavirus pandemic, BSP Governor Benjamin E. Diokno said.
  • “Under current circumstances, the timing and pace of the BSP’s exit plans remain uncertain. While recent indicators point to a recovery in economic activity, the recent new coronavirus disease 2019 (COVID-19) cases while receding are still high and could represent a downside risk to the outlook for growth and inflation,” Mr. Diokno said.
  • An Omicron-driven surge hit the country in Jan 22, but a recent decline in COVID-19 infections has prompted a more relaxed Alert Level 2 to be implemented in Metro Manila.
  • “Even as we have begun looking toward the eventual withdrawal of policy support, the timing of the exit could still be contingent on how prevailing conditions evolve,” Mr. Diokno said.
  • He previously signaled the central bank may consider adjusting policy rates when it sees four to six quarters of economic growth.
  • Mr. Diokno said there will be a more gradual process for the normalization of the central bank’s balance sheet which reflects its support to the National Government.
  • “Data as of 20 Jan 22 show that most of our government securities holdings will be retired by 2025. Meanwhile, the recent round of provisional advances to the National Government will mature by mid-2022,” he said.
  • Mr. Diokno said the central bank is aware of reputational risks coming from this budgetary financing, but stressed it was within the bounds of law.
  • “To dispel the notion of fiscal dominance, the BSP has been deliberate in communicating to the public that its direct provisional advances to the National Government is allowed under extraordinary times, is temporary, and is a last-resort intervention.

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