THE Bangko Sentral ng Pilipinas (BSP) said it is evaluating the timing of moves to wind down its stimulus program as the economy recovers, in order to avoid any negative effects from policy action taken during the height of the crisis, such as the persistence of low interest rates.

“Most of these monetary instruments will need to be scaled back, if not reversed entirely, even if other instruments of the central bank may have to utilized,” Marites B. Oliva, an economist with the BSP’s Center for Monetary and Financial Policy, said in a forum organized by the Philippine Economics Society Tuesday.

The central bank implemented a range of policy actions to provide support during the crisis. It started cutting rates in February, before the pandemic started affecting the economy. The BSP reduced key policy rates by a total of 175 basis points, bringing down the overnight reverse repurchase, lending, and deposit facilities to .25%, 2.75%, and 1.75%, respectively.

It also reduced the reserve requirement for banks by a total of 200 bps, in an effort to increase liquidity. It also agreed to classify loans to small businesses as a form of reserve compliance.

The BSP’s policy measures have injected P1.9 trillion into the financial system, equivalent to 9.6% of gross domestic product.

The BSP has also granted a total of P840 billion via provisional advances to the national government through a repurchase agreement with the Bureau of the Treasury and direct provisional advances. The amount is P10 billion less than the P850-billion limit.

“The unwinding of conventional measures is anchored on the medium- and long-term outlook for price stability. For unconventional measures, the unwinding will depend on the impairment of the monetary policy transmission to the financial system and the market,” Ms. Oliva said.

“Waiting too long could give rise to systemic risks especially amid a prolonged environment of low interest rates,” she added.

Ms. Oliva cited as an example BSP’s continued purchases in the secondary market, which she said “would have to be gradually normalized to avoid conflicting signals and policy conditions.”

BSP Governor Benjamin E. Diokno has said that the bank will carefully assess the timing of unwinding the measures taken during the pandemic to avoid serious repercussions.

“Moving forward, an optimal exit strategy should be one that is induced by a favorable macroeconomic environment,” Ms. Oliva said. — Luz Wendy T. Noble