Monetary policy setting based on domestic factors: BSP

MANILA – Domestic factors and not moves by major central banks are the key considerations in any policy decision of the Bangko Sentral ng Pilipinas (BSP).

BSP Governor Benjamin Diokno underscored monetary authorities’ commitment to keep the central bank’s accommodative stance to support the economy’s recovery until signs of strong recovery in the real sector are seen.

“We would like to emphasize that while the BSP takes into consideration the policy actions of major central banks, including that of the Fed (Federal Reserve), the BSP does not need to recalibrate its policy setting based on these external factors,” he said in a virtual briefing Thursday.

Diokno said the major factors in the BSP’s policy decisions are the developments on the domestic demand and inflation rate.

Last year, the BSP increased its key rates by a total of 200 basis points to help buoy the domestic economy from the impact of the pandemic.

It has maintained its accommodative stance since domestic output remains in contraction and the rate of price increases accelerated starting in the last quarter of 2020 and peaked thus far at 4.7 percent last February.

Inflation surpassed the government’s 2-4 percent target band last January when it rose to 4.2 percent, but was flat at 4.5 percent from March to May.

It has decelerated to 4.1 percent last June.

Monetary authorities expect inflation to remain elevated until the third quarter of the year.

The BSP forecasts inflation to average at 4 percent this year and to stay within the target band until 2023.

This factor and the growth outlook are the main drivers for the unwinding of monetary stimulus measures, Diokno said.

He said it is understandable for central banks to start withdrawing stimulus measures as signs of recovery from the pandemic are slowly coming out.

“At this point, however, we believe that many central banks, including the Fed, are likely to remain patient in lifting monetary accommodation given the continued downside risks to output and to provide support to economic recovery amid the Covid-19 health crisis,” he added.