PH recovery ‘will not be easy,’ BSP warns
Saying the Philippines’ road to recovery will be a challenging one, the central bank reiterated its commitment to keep domestic interest rates as low as possible for as long as possible to help the pandemic-ravaged country rise from its deepest postwar economic slump.
Thus said, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno who added that the monetary authority was also balancing this goal with the need to keep prices of basic goods and services from rising at too fast a pace.
“The Philippines has sustained its position compared with rating peers because of the strengthening of its fiscal metrics ahead of the pandemic shock,” he said in a statement released by the BSP.
“Nevertheless, the country’s road to recovery will not be easy,” Diokno warned. “We will continue to monitor recent developments, here and abroad, and assess their impact on the inflation outlook, financial stability and growth.”
With signs of broad improvement in economic performance and a relatively more manageable pandemic situation in some economies, markets expect central banks, including the US Fed, to consider a possible shift to policy normalization—an expectation that is triggering worries among lagging economies like the Philippines that may soon have to face rising interest rates in the international market.
Since the start of the pandemic early last year, the BSP has infused about P2.2 trillion worth of liquidity into the domestic economy through a combination of rate cuts, reserve requirement cuts and loans to the national government, among others.
Its overnight borrowing rate—the benchmark used by financial institutions in pricing their own loans—stands at a record low of 2 percent. Despite this, confidence among borrowers and lenders remains low, with bank lending declining for the seventh consecutive month last June.
Diokno said the BSP was resolute to staying the course amid the COVID-19 pandemic by maintaining price stability, bolstering the financial sector, strengthening resilience against external shocks and supporting the national government’s policies in addressing the current crisis and ensuring stronger recovery from the health crisis.
The BSP governor said sustained targeted fiscal initiatives and monetary policy support for domestic demand would help boost market confidence and economic recovery to gain more traction.
He stressed that the key to a sustained economic rebound was the acceleration of the government’s vaccination program.
“Looking ahead, the BSP is committed to support the economy for as long as needed to ensure its strong and sustainable recovery,” Diokno said. “The BSP will also remain vigilant against any emerging risks to the outlook for inflation and growth and will adjust its policy settings as needed to safeguard its price and financial stability objectives.”