THE CENTRAL BANK will focus on maintaining policy support to help drive economic recovery, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said, adding the Philippines is well-placed to weather the impact of monetary policy tightening in other countries.
“Many central banks in advanced and emerging economies have started reassessing their respective monetary policy settings in view of surging prices owing to strong demand and persistent supply constraints,” Mr. Diokno said at an online briefing on Thursday.
“The BSP, however, is confident that the Philippines is well-placed to recover with a possible tightening of global financial conditions,” he added.
Mr. Diokno said the BSP can tap policy tools for such incidents, including a timely participation in the foreign exchange market to help tame volatility. Measures that target specific imbalances and prevent the buildup of risks in the financial system may also be tapped, he added.
The country will also be shielded by its ample dollar reserves and external payment position that is supported by remittances, business process outsourcing earnings, and expected recovery in export revenues, Mr. Diokno said.
Earlier this week, he said it appears that record low policy rates will be maintained “between now and the end of the year.”
“Inflationary pressures may continue to emanate from rising international commodity prices, the potential effects of recent weather disturbances, and a possible prolonged recovery from the African Swine Fever outbreak,” Mr. Diokno said.
The BSP chief said he believes inflation is still transitory, noting inflation will return to within target in 2022 and 2023.
Headline inflation in September eased to 4.8% from 4.9% in August, but still above the 2-4% BSP target. Inflation is expected to average 4.4% this year.
Global oil prices have surged in recent weeks, pushing local pump prices higher for an 8th straight week.
BSP Deputy Governor Francisco G. Dakila, Jr. attributed the higher oil prices to weather disruptions and the decision of major oil exporting countries to keep production levels unchanged despite a rise in global demand.
“Having more targeted intervention would be actually more effective. Assistance can be directed to the most vulnerable sectors of the economy, including on public transport,” he said.
While demand conditions continue to recover, BSP Department of Economic Research Senior Director Zeno R. Abenoja said the economic rebound “remains fragile.”
“Against this backdrop, continued monetary policy support remains crucial in supporting private demand and encouraging banks to lend and thereby allow the economic recovery to gain more traction,” Mr. Diokno said.
“Further traction from non-monetary government interventions to directly address supply-side inflation pressure also provide flexibility to monetary authorities in preserving policy support for the economy,” he added.
The Monetary Board has two more policy reviews scheduled this year on Nov. 18 and Dec. 16. — L.W.T.Noble