PHL economy not quite out of the woods yet — Diokno

THE central bank will continue to maintain its accommodative stance as the Philippine economy is “not quite out of the woods yet,” Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said on Thursday.

“Given the risk of new cases as we have seen in other countries, like the rest of the region, our economy is not quite out of the woods yet and we would prefer to see evidence of sustained recovery first,” Mr. Diokno said at an online briefing on Thursday.

The Philippines has recently seen a steep decline in the number of new coronavirus disease 2019 (COVID-19) infections, which prompted the further easing of mobility curbs. The Health department reported 975 new COVID-19 cases, bringing the active cases to 17,796 as of Thursday.

While the economy has further reopened, there are worries the Philippines may see a COVID-19 resurgence similar to the ones currently experienced by Europe and the United States.

Last week, the BSP kept the key policy rates unchanged at record lows, noting the need to continue supporting a recovery that has gained traction.

“The BSP continues to closely cooperate with fiscal authorities in ensuring continued policy support for the economy while preparing the groundwork for a coordinated gradual exit from stimulus measures when conditions warrant,” Mr. Diokno said.

The country’s gross domestic product expanded by a better-than-expected 7.1% in the third quarter. Year-to-date growth is at 4.9%, putting the Philippines on track to meet the government’s 4-5% full-year GDP target.

Mr. Diokno said their monetary policy decisions will track outcomes seen in the economy instead of being anchored on a specific calendar date.

“The timing for policy normalization will really depend on when we are able to see solid, sustainable recovery in the data and when the slack in the economy disappears based on the output gap,” he said.

“We will also pay close attention to liquidity and credit conditions, the state of public health as well as external developments and potential spoilers,” he added.

The central bank will have its last policy review for the year on Dec. 16. Mr. Diokno has earlier said he does not see the need for policy rate adjustments until at least the end of 2021.

Meanwhile, he said the BSP is keeping its target to bring down the reserve requirement ratio (RRR) of banks to a single digit by 2023.

“The BSP’s decision on the RRR will be made in conjunction with the BSP’s broader strategy to normalize monetary policy settings when domestic demand conditions attain significant recovery from the pandemic,” he said, noting they will be looking at credit activity and liquidity dynamics.

To boost liquidity last year amid the crisis, the central bank reduced the reserve requirement for big banks by 200 basis points (bps) to 12%, while RRR of thrift and rural lenders were cut by 100 bps to 3% and 2%, respectively.

Also, Mr. Diokno said the BSP’s purchase of government securities in the secondary market has already “significantly gone down” from last year.

RELIEF MEASURES

Meanwhile, the BSP is still assessing the duration of the policy relief measures it has implemented during the pandemic.

“Retention of the measures that form part of the BSP’s regulatory policy toolkit is currently the subject of an ongoing study which will consider assessment of economic developments and financial conditions,” Mr. Diokno said at an online briefing.

“The measures that incentivize lending to vulnerable sectors, such as underserved market segments, micro-, small- and medium-sized enterprises (MSMEs) will be retained for as long as necessary to support the recovery,” he added.

The BSP last year allowed loans to MSMEs to be counted as part of banks’ alternate reserve compliance. Mr. Diokno said the relief measure will be in place until the end of 2022 or will be reviewed once the P300-billion limit will be reached.

As of the reserve week ending Nov. 4, he said banks have utilized P202 billion so far as part of their alternate compliance, Mr. Diokno said.

The BSP governor said there are no changes to the ceiling for credit card charges, which will be subjected for review every six months.

“This will continue to help ease financial burden on consumers through affordable credit card pricing,” he said. — Luz Wendy T. Noble