BSP vows to back economy with accommodative stance

The Philippine central bank will keep a supportive monetary policy amid a slower-than-anticipated economic recovery, its governor said on Friday. 

“High-frequency indicators suggest that the economy is gradually recovering from the adverse effects of the pandemic, but it would appear that the recovery is slower than anticipated,” Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno told a forum. 

“As such, the BSP will maintain its accommodative stance for as long as necessary to support and sustain the economy’s recovery,” he added. 

The central bank would watch risks to inflation and the growth outlook and would adjust policy settings when needed to maintain financial stability, he said. 

The central bank kept the key policy rate at a record low of 2% at its meeting on June 24, citing threat from the coronavirus and a recovery that had just started. 

“There are still risks to our growth outlook as the presence of the Delta coronavirus variant might give rise to renewed restrictions, similar to what is happening in select cities in Asia, Europe and Oceania,” Mr. Diokno said. 

Economic output fell by 4.2% in the first quarter after a record 9.6% contraction in 2020. 

The central bank chief said there were “promising signs of recovery, including the growth in exports and foreign direct investments (FDI). 

Exports rose by 21.4% to $29.35 billion in January to May from a year earlier, while FDI inflows jumped by 56.3% in the first four months to $3.056 billion. 

Meanwhile, Mr. Diokno said headline inflation was beyond their 2-4% target “due to transitory factors,” but should remain within estimates over the policy horizon. 

“We reiterate that increases in prices owing to supply shocks are best dealt with by supply-side interventions,” he said. 

Meanwhile, July inflation was expected to exceed the central bank’s target for the seventh straight month amid rising oil, food and electricity prices, Mr. Diokno said. 

The consumer price index is expected to rise by 3.9% to 4.7% this month, likely at 4.3%, he told reporters in a Viber message. Inflation in June was 4.1%  and 2.7% a year earlier. 

“Higher prices of domestic petroleum products and key food items along with the upward adjustment in Manila Electric Co. electricity rates and a weaker peso are the main sources of upward price pressures for the month,” Mr. Diokno said. 

Inflation was 4.4% in the first half. The central bank will hold its next policy-setting meeting on Aug. 12.