THE CENTRAL BANK is committed to keeping interest rates low until the end of 2022 to provide support for the economy as it recovers from the pandemic, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said on Tuesday.
In an interview with Bloomberg Television, Mr. Diokno said the central bank continues to have “monetary space” available, even after implementing a cumulative 200-basis point (bp) reduction in policy rates this year.
“We made the policy decision that we will keep rates at this level until the economy has fully recovered, until the economy has recovered to its previous level of maybe 6.5 to 7.5% [growth], and unemployment is down to 5% range,” Mr. Diokno said
“We plan to keep this low interest rate for long, maybe at the end of 2022,” he added.
Mr. Diokno stressed that an accommodative monetary policy paired with fiscal policy “should quicken the economy’s transition towards a sustainable recovery”.
To provide support to the economy heavily battered by the coronavirus pandemic, the BSP has cut overnight reverse repurchase, lending, and deposit facilities to record lows of 2%, 2.5%, and 1.5%, respectively. Given inflation is already at 3.3% as of November, the country is already experiencing a negative real interest rate environment.
However, Mr. Diokno assured that this “unconventional negative interest rate regime” will not be the case “for so long”.
“That’s not part of our policy framework,” he added.
Mr. Diokno said the central bank still has room for further monetary easing amid a benign inflation environment (within the government’s 2-4% target range) until 2024. The Monetary Board left policy rates unchanged at its Dec. 17 meeting.
He is also bullish that the economy will recover starting the first quarter of 2021.
“We’re not at the end of the line but I think this is the time for another pause because after all, we have been very aggressive,” Mr. Diokno said.
Analysts said the latest signal from Mr. Diokno is meant to provide assurance that the central bank will remain supportive of growth measures through an accommodative stance.
“Policy transmission takes a while to permeate into the financial system, and with confidence beginning to turn positive, these need to be nudged further by the central bank by remaining accommodative to spur investments,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in a text message.
“The economic scarring from this year has been deep, and we still face uncertainties, so the onus is to prop-up confidence while looking to execute an expansionary monetary policy,” he added.
The economy slumped by 11.5% in the third quarter, bringing the gross domestic product (GDP) performance to a 10% contraction in the first nine months.
This year, the government expects the GDP to drop by 8.5-9.5% before growing by 6.5-7.5% in 2021.
For Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort, keeping the policy rates low will boost credit growth.
“Near record low interest rates will spur greater demand for loans, thereby stimulating more investments, all resulting in increased economic activities,” he said in a text message.
Lending remained tepid in October as growth stood at 1.9%, the slowest since the same print was seen in September 2006. This, as banks tightened their credit standards and borrowers’ confidence remained low amid the crisis.
The Monetary Board’s first policy setting meeting is set on Feb. 11. — Luz Wendy T. Noble