THE CENTRAL BANK chief has reiterated the regulator’s commitment to support the economy for “as long as necessary” while maintaining financial stability, but said it has room to address any risks that may result from the unwinding of easy policy in the United States.

“The BSP (Bangko Sentral ng Pilipinas) will continue to focus on keeping its monetary policy stance supportive of the government’s initiatives to address the effects of the pandemic, for as long as necessary, until the economic recovery gets underway,” BSP Governor Benjamin E. Diokno said at a virtual briefing on Thursday.

Mr. Diokno’s statement comes a week before the Monetary Board’s meeting on June 24 and after the US Federal Reserve hinted it could increase interest rates by 2023.

The BSP slashed benchmark rates by 200 basis points last year. Borrowing costs have been at record lows since November.

Mr. Diokno said earlier this month that the BSP would keep policy settings loose until the economy’s recovery becomes sustainable, which he noted could be in the second half of 2022.

Aside from keeping rates low, the central bank has also provided stimulus by freeing up liquidity via various easing measures. The BSP chief said its actions have released some P2.2 trillion into the financial system, which is equivalent to 12.1% of gross domestic product.

“The big bulk of that came from the BSP’s participation in the secondary government securities market, and then a big chunk also is the repurchase arrangement with the National Government — that’s about P540 billion — and another big chunk will be the interest rate cut and the cut to the reserve requirement,” Mr. Diokno said.

He said even as they aim to keep monetary policy supportive of growth, they remain committed to their mandate of financial stability, noting that a possible source of risk is how markets would react once the Fed cuts its bond purchases and, eventually, hikes borrowing costs. 

In 2013, after years of easy policy following the global financial crisis, the Fed announced it would begin unwinding its massive quantitative easing program and spooked investors, leading to the so-called taper tantrum, which involved sharp outflows from emerging markets. This caused central banks to scramble to raise their own rates.

Due to the coronavirus pandemic, the Fed last year restarted its bond purchases as a form of economic stimulus.

But the Fed on Wednesday began closing the door on its pandemic-driven monetary policy as officials projected an accelerated timetable for interest rate increases, opened talks on how to end crisis-era bond-buying, and said the 15-month-old health emergency was no longer a core constraint on US commerce, Reuters reported.

Signaling that broad changes in policy may happen sooner than expected, US central bank officials moved their first projected rate increases from 2024 into 2023, with 13 of 18 policy makers foreseeing a “liftoff” in borrowing costs that year and 11 seeing two quarter-percentage-point rate increases.

Seven of the officials see rates moving higher next year, opening the possibility of even more aggressive action.

Fed Chair Jerome Powell, who spoke to reporters after the release of the central bank’s latest policy statement and economic projections, said there had also been initial discussions about when to pull back on the Fed’s $120 billion in monthly bond purchases, a conversation that would be completed in coming months as the economy continues to heal.

For his part, Mr. Diokno said he believes the Fed is unlikely to hike rates next year due to the upcoming midterm elections in the US and as uncertainties over the pandemic remain.

“In any event, an increase in interest rates in the US is not an immediate threat to the Philippines because we have a lot of tools that will address that concern,” he said. “Our GIR (gross international reserves) is healthy, and our interest rates at the moment is rock bottom. We can do a lot of measures to counteract any possible effect on the Philippines.”

Meanwhile, the central bank chief also reiterated the importance of fiscal measures as the government continues to respond to the pandemic.

“Fiscal policy, in particular, remains crucial in providing direct support to revive domestic demand and prevent long-term economic scarring from the pandemic, with the BSP remaining ready to implement further policy measures, if necessary,” Mr. Diokno said. — LWTN with Reuters