Benjamin Diokno, Bangko Sentral ng Pilipinas Governor, yesterday said that it is still “too early to talk about exit strategy” in the post-pandemic period, stressing that the economy “won’t be back until perhaps the second half of 2022.”
“We share the view that 2021 or this year will be a recovery, and that the economy won’t be back to its 2019 level in the aggregate until perhaps the second half of 2022,” Diokno said, stressing that “that prognosis is subject to upward and downward stress.”
Diokno explained when the economy reaches full recovery, the BSP will aim to implement a “preplanned strategy for the withdrawal of policy stimulus, taking care to avoid unwinding policy measures either too early or too late.”
“This is to ensure the sustainability of the economic recovery while also guarding against any emerging threats to the BSP’s price and financial stability objectives,” Diokno said.
With inflation likely to remain elevated in the coming months, the policymaking Monetary Board last month decided to maintain the key rates of the BSP at record low to help the economy combat the pandemic.
The BSP’s overnight reverse repurchase facility remains at 2 percent while the interest rates on the overnight deposit and lending facilities were likewise kept at 1.5 percent and 2.5 percent, respectively.
Central banks reduce interest rates to encourage borrowing and investing, thereby possibly stimulating economic growth. But this move may hasten inflation, which last month reached 4.7 percent, fastest in two years.
Rates are raised, meanwhile, when there is too much growth, which is not the case now. The Philippines posted its worst economic contraction on record in 2020 as it shrank 9.5 percent due to the impact of the coronavirus disease 2019 (COVID-19) pandemic.
The Monetary Board will be holding its policy stance meeting today.
Diokno said that consistent with the BSP’s data-driven approach to policymaking, the timing of exit of monetary policy measures will primarily depend on the evolution of domestic factors, particularly the outlook for inflation and economic growth.
At present, amid a manageable inflation environment, subdued demand pressures, and within-target inflation expectations, Diokno said the BSP has “scope to preserve monetary policy support to the economy to help strengthen overall demand and shore up market confidence.”
“The recent inflation uptrend observed in recent months is expected to be largely transitory, reflecting the impact of weather-related disturbances, as well as higher global oil prices,” Diokno said.
Diokno said they likewise continue to pay close attention to demand-driven inflation as recovery becomes self-sustaining.
“Having a carefully formulated exit strategy from policy measures against the effects of COVID-19 enables the BSP to have a clear guide to future actions. When the economy fully recovers growth becomes sustainable. That said, the BSP monetary policymaking remains data driven, and the timing of the exit from stimulus will primarily depend on the future trajectory of domestic inflation and economic growth,” Diokno said.
“When the economy reaches full recovery, the BSP will aim to implement pre planned strategy for the withdrawal of accommodative monetary policy measures, taking care to ensure the sustainability of recovery, while also guarding against any emerging threats to BSPs price and financial stability objectives,” Diokno added.