Diokno, undeterred by inflation, is keeping his easy-money policy


March 8, 2021

MANILA, Philippines — Not even another month of above-target inflation could convince Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno that it’s time to tighten monetary policy, making good on his promise to support a fledgling recovery as long as he can.

“The current accommodative monetary policy will continue,” Diokno said in a text message on Monday. “I see no reason why it should be recalibrated or reversed at this time.”

It was a bold forward guidance rather expected from no less than the dovish central banker that has put primacy on resuscitating a battered economy over and above anything else, just 2 weeks before BSP convenes its policymaking Monetary Board to decide monetary policy on March 25.

If anything, the recent bouts of inflation are something tighter money supply cannot fix. Food shortages, particularly pork, have fanned prices to 4.7% in February, while in some areas outside the capital depended on by Metro Manila for pork supplies, the rate was faster. There is no immediate end in sight as the BSP itself sees inflation hitting the ceiling of its 2-4% target by yearend.

As monetary stimulus is bound to continue, with record-low benchmark rate and mandated bank reserves, Diokno reiterated a central bank position that the idea of easing early and boosting money supply was meant to ensure resources are there if and when economic activities finally pick up.

When will that happen, however, remains less certain at this point, as a new wave of coronavirus infections sprang talks of a return to lockdown just as the Philippines started a slow vaccination program a week ago. In another ANC interview on Monday, Cabinet Secretary Karlo Nograles said the government is unlikely to give in to proposals of new lockdowns despite the fastest surge in cases not seen since August last year.

Banks have also been reluctant to lend, with loans down for the second straight month in January, dramatically moderating the impact of BSP’s stimulus on the economy. Diokno made the assurance of keeping rates low just as Brent oil, a benchmark for global oil prices, breached $70 a barrel for the first time in nearly 2 years.

“We have already deployed something like P2 trillion of liquidity measures, that has yet to be absorbed by the market,” Diokno told ABS-CBN News Channel on Monday morning.

“To me, because of the risk aversion of banks and the lack of confidence of consumers and investors, then the P2-trillion liquidity measures we have released in the system remain relevant… In fact, we don’t have plans of stopping or taking away the liquidity measures that we have released until such time that the economy has recovered,” he explained.

Sought for comment, Sanjay Mathur, economist at ANZ Research, believes that while the BSP is unlikely to hike rates anytime soon, there could be a slowdown from last year’s easing episode cumulatively worth 200 basis points.

“However, as the Governor has stated that for now, liquidity is quite abundant and does not need to be augmented. Should it dry up, we could see more easing. As for raising rates, it is unlikely as growth is just about recovering and inflation pressures are really supply side disruptions,” Mathur said in an email.


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