Philippine Central Banker Sees No ‘Drastic’ Liquidity Moves
Current monetary policy in the Philippines is adequate to address the economic fallout of the pandemic, while there’s still scope for additional aid on the part of fiscal authorities, the central bank’s governor said Thursday.
“We feel that our current monetary policy stance is still appropriate for the economy. So I don’t think there would be any drastic moves on our part to inject any more liquidity into the system,” Benjamin Governor Benjamin Diokno told Bloomberg Television’s Kathleen Hays in an interview. “I think there’s still need for some fiscal stimulus.”
After cutting its key interest rate by 200 basis points last year, Bangko Sentral ng Pilipinas has held steady since November to support an economy in recession, even with inflation running above the bank’s 2%-4% goal. The BSP estimated last month that average price gains this year would be slightly above-target, but Diokno said Thursday he’s confident inflation will fall within the range longer term. Policy makers have pegged the current pressure on transitory supply issues that don’t require a monetary response.
Diokno’s comments Thursday echo his statements in recent months that monetary policy likely will remain unchanged, as well as calls for further fiscal support. He flagged a long pause in the interest-rate front in January.
“We need to take care of the poor and the vulnerable who are affected by the lockdowns,” Diokno said. “We are looking at fiscal and health authorities to do their job.”
Many analysts see the central bank continuing to look past quickening inflation to boost flagging demand. The reimposition of a strict lockdown in Manila and surrounding areas until at least April 11 is expected to shave about 0.8 percentage points off economic growth this year, underpinning bets that interest rates will be kept low for some time.
The benchmark Philippine Stock Exchange index closed 1.6% lower Thursday, its steepest fall since March 19. The peso was up 0.1% as of 3:10 p.m. in Manila.
Diokno said Thursday he expects the Philippine economy to grow 6%-7% this year. That’s lower than official projections of 6.5%-7.5% -- currently under review by the country’s economic managers -- from before the latest lockdown.
Movement curbs aren’t the only factor affecting business confidence, Assistant Governor Iluminada Sicat said in a briefing Thursday. Efforts to fast-track vaccinations, as well as a recovering global economy, can shore up sentiment, she said.
A central bank survey before the new lockdown showed companies’ outlook improved in the first quarter from the last three months of 2020, but remained below pre-pandemic levels.
In the interview, Diokno said the central bank had extended the maturity of a 540-billion peso ($11.1 billion) loan to the government. The no-interest loan, approved in December, now must be repaid by July 12, Treasurer Rosalia de Leon said in a mobile-phone message Thursday.
The government is looking to wind down its loans from the central bank later this year or early next, Finance Secretary Carlos Dominguez said Tuesday, as fiscal authorities look at ways to pare debt.
With the government avoiding outsized spending packages to preserve its credit rating, the central bank has taken the lead in pandemic relief. In addition to rate cuts, the bank reduced the required reserve ratio by 200 basis points last year and kept lending rules loose.
Policy makers are next scheduled to set rates May 13.
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