THE Philippine central bank will remain accommodative until economic recovery is sustained, with further monetary policy adjustments likely by the second half of 2022, Governor Benjamin E. Diokno said.
“We will continue this loose monetary policy until such time that we are sure that the government is on its way to recovery, a sustainable recovery. And that I see will happen maybe second half of next year so that’s when we’ll probably look at further adjustments in our monetary policy,” he said in an interview with the ABS-CBN News Channel on Monday.
The Bangko Sentral ng Pilipinas (BSP) chief vowed to have “a very carefully crafted, managed disengagement strategy” in unwinding policies implemented during the pandemic.
The Monetary Board kept the overnight reverse repurchase at a record low of 2% at its May policy review.
Mr. Diokno said this would provide continued support for the economy’s recovery from the crisis.
The economy remained in a recession in the first quarter, when it shrank by 4.2%. The country’s gross domestic product contracted by a record 9.6% last year.
The government earlier in May has slashed its growth target for 2021 to 6-7% from 6.5-7.5%.
“I think that its [targets are] optimistic but that’s the fighting target of the government authorities so let’s give them a chance,” Mr. Diokno said.
The pace of the mass vaccination campaign will be crucial in restoring consumer confidence and driving economic activity.
“I think really the focus of the government right now is still the vaccination. That’s the best way to perk up the economy. Because with the vaccination, you gain confidence. The [confidence of] consumers will of course lead to more economic activity,” he said.
The government is targeting to inoculate 50 million Filipinos by end-November, concentrated mostly in the high-risk areas of Metro Manila, Cavite, Laguna, Rizal and Bulacan. By the first quarter of 2022, the government hopes to have 70 million Filipinos vaccinated.
Based on Johns Hopkins University’s vaccine tracker, the Philippines has fully vaccinated 1.029 million Filipinos, equivalent to 0.95% of the population. This ratio is lower than other ASEAN economies that have fully vaccinated a bigger part of their population including Singapore (28.34%), Indonesia (3.78%), Thailand (1.57%), and Malaysia (3.42%).
Apart from the vaccination drive, the government’s continued infrastructure push would also support recovery, Mr. Diokno said.
Meanwhile, the BSP governor discounted the possibility of another “taper tantrum,” similar to what happened in 2013.
“I don’t think that [an interest rate hike] is in the cards at the moment because there’s a midterm election next year and I don’t think that the [US] Treasury or the Fed will engineer an increase in interest rates because that will cut down the economy at its band. I will assign it a very low probability that there will be a taper tantrum,” Mr. Diokno said.
For the Philippines, the more relevant concern is inflation, which Mr. Diokno said would be “manageable this year.”
The central bank in May lowered its inflation forecast for the year to 3.9%, already within its 2-4% target from the 4.2% it previously penciled.
Mr. Diokno’s latest guidance on the policy decision would help calm market participants, said Security Bank Corp. Chief Economist Robert Dan J. Roces.
“Markets will welcome a carefully crafted messaging of the central bank’s strategy as it manages volatility and lessen speculation, and more importantly it should help restore business and consumer confidence,” he said in a Viber message.
Mr. Roces said the governor’s assessment that a more sustainable recovery is more likely by the second half of 2022 is possible due to the impact of the lingering pandemic.
“We share the view that recovery will take some time, what with the deep economic scarring, uncertainties, and cautiousness the pandemic has brought. Restoring business and consumer confidence will be important and indeed, the primary challenge to the economy, and the key ingredient to a sustainable recovery,” he said.
The Monetary Board’s next policy-setting meeting is scheduled on June 24. — L.W.T.Noble