THE TIMING of the Bangko Sentral ng Pilipinas’ (BSP) exit strategy remains clouded by the uncertainty over the coronavirus pandemic, BSP Governor Benjamin E. Diokno said. 

“Under current circumstances, the timing and pace of the BSP’s exit plans remain uncertain. While recent indicators point to a recovery in economic activity, the recent new coronavirus disease 2019 (COVID-19) cases while receding are still high and could represent a downside risk to the outlook for growth and inflation,” Mr. Diokno told Global Source Partners in a report released on Feb. 4.

The economy grew by an annual 7.7% in the last three months of 2021, which brought full-year growth to 5.6%, as restrictions eased.

An Omicron-driven surge hit the country in January, but a recent decline in COVID-19 infections has prompted a more relaxed Alert Level 2 to be implemented in Metro Manila. The Health department reported 6,835 new cases on Monday, bringing active cases to 116,720.

“Even as we have begun looking toward the eventual withdrawal of policy support, the timing of the exit could still be contingent on how prevailing conditions evolve,” Mr. Diokno said. He previously signaled the central bank may consider adjusting policy rates when it sees four to six quarters of economic growth.

Mr. Diokno said there will be a more gradual process for the normalization of the central bank’s balance sheet which reflects its support to the National Government.

He earlier said the BSP’s purchase of government securities in the secondary market averaged P282 million daily from Dec. 1 to 23, a significant decline from the peak of P14.7 billion daily average in June 2020.

“Data as of Jan. 20 show that most of our government securities holdings will be retired by 2025. Meanwhile, the recent round of provisional advances to the National Government will mature by mid-2022,” he said.

The BSP in December approved another P300-billion zero-interest advance for the National Government, payable in three months. This is smaller than the previous P540-billion direct advance extended by the BSP in July.

Mr. Diokno said the central bank is aware of reputational risks coming from this budgetary financing, but stressed it was within the bounds of law. 

Under Republic Act 11494 or the Bayanihan to Recover as One Act, the central bank is authorized to lend the National Government an equivalent of 30% of its average revenue or P850 billion. This is higher than the cap set at 20% of its average annual revenue provided by Republic Act 7653 or The New Central Bank Act.

The International Monetary Fund has recommended that the gradual phasing out of direct advances to the National Government should be the first step taken by the BSP in its policy normalization once recovery becomes more entrenched.

“To dispel the notion of fiscal dominance, the BSP has been deliberate in communicating to the public that its direct provisional advances to the National Government is allowed under extraordinary times, is temporary, and is a last-resort intervention for only as long as weak economic activity continues to impede the government’s revenue streams,” Mr. Diokno said. — L.W.T.Noble