The Philippine central bank would monitor the potential second-round effects of inflation and would deploy policy tools to safeguard price and financial stability, Governor Benjamin E. Diokno said on Friday.听
鈥淲e agree with the assessment of the International Monetary Fund (IMF) that inflation could return to its pre-pandemic ranges in most countries in 2022,鈥 he told an online news briefing. 鈥淗owever, caution should be exercised to ensure that temporary price pressures do not become fully entrenched in the domestic price dynamics.鈥听
“The Bangko Sentral ng Pilipinas (BSP) stands ready to maintain its accommodative monetary policy stance for as long as necessary to support the economy鈥檚 recovery amid the adverse impact of the COVID-19 pandemic,鈥 he听added.听
The central bank would also ensure听that monetary policy settings are听鈥渋n line with sustainable recovery of the economy, consistent with its price and financial stability mandates.”听
The听Philippines听should听avoid听prematurely听unwinding听fiscal听and听monetary听support听for听the听economy听given听a听fragile听recovery听amid听lockdowns听spurred听a听fresh听surge听in听coronavirus听infections,听according听to听the听IMF.听
鈥淲e听need听to听nurture听this听recovery,鈥澨齀MF听Philippine听representative听Yongzheng听Yang听told听an听online听forum听on听Friday.听鈥淥ne听thing听we听should听avoid听is听the听premature听withdrawal听of听macroeconomic听policy听support,听because听recovery听is听so听fragile.鈥听
The government appears to have balanced economic support with a sustainable debt level, Mr. Yang said.
The multilateral lender projected the country’s general government debt to peak at 62% of economic output by 2024 from 48.1% in 2020, higher than the pre-pandemic ratio of 34.1%. This is considered a moderate level compared with peer countries.
“But听within听this听good听balance,听there听needs听to听be听flexibility听in听policy听support,”听he听said.听
“We need to be able to move resources quickly to respond to emerging priorities,鈥 Mr. Yang said. The recent infection surge showed the need to support the health sector by boosting hospital resources, tracing, testing, isolation and vaccination, he added.听
The IMF in June cut its 2021 economic growth forecast for the Philippines to 5.4% from the 6.9% it gave in March. Mr. Yang said the virus surge and renewed lockdowns threaten economic expansion that is less optimistic than the government’s 6-7% target for the year.听
鈥淭here听are听risks听and听the听bottom听line听is听they听are听substantial,鈥澨齮he听IMF听official听said.听鈥淭he听recovery听will听need听to听be听nurtured听and听the听risk听needs听to听be听managed.鈥听
Still,听he听said听the听government听has听enough听fiscal听room听to听mitigate听the听risks听of听a听protracted听coronavirus听pandemic.听
The听state听should听also听focus听on听improving听the听implementation听of听fiscal听measures听such听as听the听credit听guarantee听scheme听that听is听meant听to听encourage听banks听to听lend听more听to听small听and听medium-sized听enterprises,听Mr.听Yang听said.听
The IMF thinks the BSP should keep its monetary policy stance while taking into account rising consumer prices. But prices seem to have started moderating, and are is projected to go back to the central bank鈥檚 target of 2-4% by year-end, Mr. Yang said.听
鈥淭he听risk听of听inflation听is听more听or听less听balanced.鈥听
Inflation听was 4%听percent听in听July,听the slowest in seven months and the first time it settled听within听the听central听bank’s听2-4%听target听for听the听year.听
The听BSP听also听kept听benchmark听interest听rates听at听record听lows听to听support听the听economy.听
Fitch Solutions on Friday said it expects the central bank to keep the policy rate unchanged at 2% until late-2022, before increasing it by 50 basis points to 2.5% by the end of next year.听
In a note, the think tank said the BSP would keep its accommodative stance to support economic recovery as pandemic disruptions persist. The chances of further policy rate cuts seem muted since demand for credit remained weak, it added.听
鈥淎听spread听of听the听Delta听variant听to听other听regions听and听prolonged听nationwide听lockdowns听could听even听prompt听the听BSP听to听ease听monetary听conditions听further听to听support听growth,鈥 it said.听
鈥淔or听now,听we听think听any听monetary听easing听would听come听via听the听lowering听of听reserve听requirement听ratios听rather听than听a听cut听to听the听key听policy听rate,”听it听added.听
