THE BANGKO SENTRAL ng Pilipinas (BSP) is keen on keeping an accommodative policy stance to support economic recovery, but officials say further monetary easing is still “on the table.”

“Further monetary easing remains ‘on the table’ especially amid the recent COVID-19 (coronavirus disease 2019) wave. But when a sustainable recovery is apparent, BSP will implement a gradual exit strategy, making sure that this exit is neither too early nor too late,” central bank officials told Nomura Global Markets Research in a session held on Sept. 3. A copy of the transcript was sent by Nomura to journalists. 

The BSP kept the key policy rate steady at a record low of 2% in August as it warned of the impact of renewed lockdown measures and a surge in COVID-19 infections on the economy’s nascent recovery.

Amid the impending policy normalization of the US Federal Reserve, the BSP stressed its monetary decisions will be mainly driven by domestic data, particularly inflation outlook.

Fed officials have already signaled they could start tapering down asset purchases within the year. Nomura in August said the Philippines is among the 10 “troubled” emerging markets that are vulnerable to changes in monetary policy in the US and slowing growth in China.

“In the past, BSP did not need to follow the Fed’s path, and this is likely to remain the same today, in view of some cushions such as high foreign exchange reserves — with more than a year of import cover — and a resilient banking system,” Nomura quoted BSP officials as saying.

The Monetary Board will have its next policy review on Sept. 23.

Central bank officials are optimistic that vaccine rollout has gained traction and the restriction measures will be supportive of economic rebound.

“Recovery is looking better with recent developments on vaccination, such as the increase in the pace of doses administered per day and the more diversified supply pipeline in coming months,” officials said.

“Lockdowns will also now become more ‘granular’ and should therefore be more supportive of mobility, consumer confidence and overall economic activity.”

Nomura analysts Euben Paracuelles and Rangga Cipta believe the central bank will keep policy rates steady for the remaining months of 2021 and at least until half of 2022, saying the BSP will mainly consider their inflation outlook for rate adjustments.

“This, in our view, continues to suggest that BSP will adhere strictly to its inflation-targeting mandate and that there is limited scope for policy rate cuts this year,” the analysts said.

The BSP expects inflation to breach their 2-4% target this year at 4.1% before easing to 3.1% in the next two years. — Luz Wendy T. Noble