BSP to remain on guard against external shocks
THE CENTRAL BANK will remain on guard against external shocks as the pandemic stretches on, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said on Friday.
“The BSP will continue to adopt policies that will strengthen the economy’s resilience to external shocks,” Mr. Diokno said in his special message at the 16th Philippine Dealing System Annual Awards Night held virtually on Friday evening.
“These will include maintaining a market-determined exchange rate, sustaining a comfortable level of reserves, and keeping the country’s external debt manageable,” he added.
The peso closed at P48.49 versus the dollar on Friday, gaining nine centavos from its P48.58 finish on Thursday. However, it has weakened by 46.7 centavos from its P48.023 close on Dec. 29, the last trading day of 2020.
Meanwhile, the gross international reserves stood at $109.082 billion as of end-February, rising by 23.7% from the year-ago level of $88.187 billion. The country’s dollar reserves stood at a record $109.8 billion at end-2020 and are expected to increase to $114 billion by end-2021.
Ample foreign exchange buffers protect the country from market volatility and ensure it is capable of paying its debts in the event of an economic downturn.
External debt increased 17.8% to $98.488 billion in 2020 from a year earlier and was the highest since at least 2012, based on central bank data. This was equivalent to 27.2% of the country’s gross domestic product, rising from the 22.2% ratio in 2019.
Mr. Diokno said they will also remain vigilant of emerging risks within the financial system.
“The BSP will intensify its monitoring and surveillance over its supervised institutions to ensure that they remain responsive to emerging risks and to promote the continued soundness, stability, resilience, and inclusivity of the banking system,” he said.
The central bank left its key interest rate unchanged at a record low on Thursday, as it supports an economy whose recovery is at risk from a renewed surge in coronavirus disease 2019 (COVID-19) infections.
The Monetary Board kept the overnight reverse repurchase rate at an all-time low of 2% for a third consecutive meeting. Rates for the overnight lending and deposit facilities were also maintained at 2.5% and 1.5%, respectively.
The central bank has kept policy settings steady since its December meeting, but Mr. Diokno has said they will respond accordingly when the need arises, especially if rising inflation produces second-round effects.
Headline inflation reached 4.7% in February, the highest since the 5.1% in December 2018.
The central bank chief also said on Wednesday that 2021 is “too early” for the BSP to unwind the easy policy it implemented at the height of the pandemic as the economy is still recovering. He said there is a need to maintain monetary policy accommodations for the BSP’s price and financial stability objectives.
The Financial Stability Board met on March 23 to review the monetary authorities’ response to the pandemic.
“Third-party institutions all agree that the unprecedented interventions of financial authorities softened the impact of COVID-19,” the central bank said in a statement on Friday.
“There are indications that the global economy is now recovering at a pace faster than initially anticipated, although financial stability authorities suggest that the socioeconomic dislocations are still significant,” it added. — L.W.T. Noble
