THE Philippines’s exit from the low-interest rate regime will be gradual and the Bangko Sentral ng Pillipinas (BSP) intends to make sure this strategy will not stoke inflation or other risks that could imperil the economy.
In a podcast interview with the Tokyo-based Asian Development Bank Institute (ADBI), Central Bank Governor and Finance Secretary-designate Benjamin E. Diokno said this requires “a well-planned, well-calibrated, and well-communicated exit strategy.”
Adopting this, Diokno said, will avoid causing volatility, reduce spillovers, and continue the Philippine economy’s recovery momentum. The Monetary Board last month decided to raise the BSP’s overnight reverse repurchase facility by 25 basis points to 2.25 percent. (Full story here: https://businessmirror.com.ph/2022/05/19/bsp-deals-25-basis-points-rate-hike-to-curb-inflation/)
“As the economy recovers and gradually returns to normalcy, the BSP is mindful that the extraordinary measures will need to be scaled back. The timing and conditions of the BSP’s exit strategy will be guided by the inflation and growth outlook over the medium term, the state of public health, and domestic and global risk to the economy,” Diokno said.
“The BSP will commit to exiting when it begins to see evidence of sustainable recovery and/or increased risk of inflation. And we have started our exit,” he added.
Diokno also said policy normalization will not limit the ability of financial institutions to offer green and sustainable finance. He said the BSP encourages green and sustainable finance instruments.
The BSP, he said, has the sustainable finance framework which is meant to support economic activities, especially those that can help reduce the ill effects of climate change and increase environmental risks.
“While the Philippines is on track to achieving full economic recovery in the near term, we must all collectively continue to work together to overcome current and emerging challenges. Now, more than ever, we must put a premium on stronger international cooperation to achieve our vision of a green, resilient, and inclusive global economy,” Diokno said.
The BSP said the reform of the Philippine tax system was the primary factor for the country’s ability to recover from the crisis while maintaining strong macroeconomic fundamentals.
Diokno said the reformed tax system placed the country in a better position to address Covid-19 and face the challenges of a post-pandemic recovery.
“Before the crisis, we simplified the tax structure, rationalized fiscal incentives, reduced personal income tax rates, and increased taxes on oil, cigarettes, and sweetened beverages,” Diokno said.
“[Also key is a] stable banking system which benefited from regulatory reforms over the years remained able to provide credit to consumers and businesses,” he said.
Diokno said for its part, the BSP injected over P2.2 trillion or $41.9 billion into the financial system. This is equivalent to 11.2 percent of the GDP.
The BSP, he said, also placed regulatory and operational relief measures for banks, helping maintain the stability of the financial system by ensuring the public’s continued access to financial services.