Diokno cites importance of inflation-targeting amid pandemic

FILE: Governor Benjamin E. Diokno represented the Bangko Sentral ng Pilipinas (BSP) at the 6th ASEAN Finance Ministers’ and Central Bank Governors’ Meeting and Related Meetings, including the ASEAN Central Bank Governors’ Meeting and the Dialogue with Business Councils (i.e., ASEAN Business Advisory Council, EU-ASEAN Business Council, and US-ASEAN Business Council), held via videoconference on 2 October 2020. (Photo: Bangko Sentral ng Pilipinas/Facebook)

MANILA – Bangko Sentral ng Pilipinas’ (BSP) inflation targeting framework provides monetary authorities the flexibility on its policy stance, which is aimed to ensure price stability that is beneficial to sustainable growth and employment.

“This is critical during this pandemic, when changes in economic conditions tend to be abrupt and unpredictable, and tend to have lingering effects,” BSP Governor Benjamin Diokno said in a virtual press briefing Friday.

He said that while the BSP has the scope to pursue sustainable growth and employment, managing the rate of price increases continues to be the central bank’s primary objective.

“We believe that ensuring low and stable prices will help facilitate economic recovery, and in the process, bring about sustainable growth. In turn, sustainable growth helps in the creation of employment opportunities over the medium term,” he said.

Diokno said the current crisis limited what monetary policy and unconventional central bank measures can do since for one, private spending is limited by, among others, the low interest rate and weak demand.

“However, fiscal policy plays a critical role during the pandemic as it can respond in a more targeted way to the most affected sectors of the economy. Overall, the Covid-19 health crisis underscores the need for a whole-of-government approach to combatting the pandemic,” he said.

With inflation expected to remain benign over the policy horizon, Diokno said BSP’s monetary policy will continue to provide policy support to the domestic economy “until a firm recovery gets underway.”

“Our inflation targeting framework continues to ensure that the inflation target over the policy horizon remains consistent with the country’s economic circumstances,” he said.

Diokno added that “enhanced transparency and accountability associated with the inflation-targeting approach has contributed to anchoring of market inflation expectations to monetary policy decisions even amid this period of elevated uncertainty.”