Loose monetary policy stays for some time

MANILA, Philippines — American banking giant Citi expects the Bangko Sentral ng Pilipinas (BSP) to keep its loose policy stance for a prolonged period as the country continues to struggle to contain the resurgence of COVID infections.

Paul Favila, country treasurer and head of markets and securities services at Citi Philippines, noted in a virtual press briefing that BSP Governor Benjamin Diokno has been stressing the need to keep an accommodative monetary policy stance to help the country fully recover from the pandemic.

“I think the governor has been very public in his views as far as how he perceives policy over the near-term horizon as we deal with this pandemic. I think the Philippines will be one of those economies that will have to keep loose monetary policy for an extended period of time, in sharp contrast of course to some of our neighbors,” Favila said.

He cited the case in South Korea, which has already triggered a tightening cycle.

“Growth is expected to be very unequal as the pandemic is hitting us in very different ways. In our case, we are right smack in the middle of another resurgence and our population is naturally also much larger than a lot of our peers, which makes it, I guess, a bit more challenging in terms of delivering vaccination,” Favila said.

The Monetary Board is widely anticipated to keep interest rates steady in its meeting today. The BSP last tweaked policy rates in November last year, which brought the benchmark rate at an all-time low of two percent.

“I expect that we will continue to see accommodative monetary policy. As far as our central bank is concerned, I think they’ve done a whole lot to help support the economy and its eventual recovery,” Favila said.

“Based on what we’re seeing right now, we are just starting to see the gradual reopening of the Philippine economy. So I think it’s a bit too soon to try to project when we might actually start the recovery phase,” he said.

Due to intermittent lockdowns, economic managers last month slashed this year’s GDP growth projection to a range of four to five percent instead of six to seven percent.

“I guess the views will be very varied out there. But it seems that, you know, there is a fair amount of resilience that we are observing in terms of the Philippine economy,” Favila said.

He said there has been recovery despite the mobility restrictions and its correlation to economic activity as shown by the evolving online platforms.

“Definitely, as far as consumption is concerned, we’re seeing it in a very different way, probably in ways that we have not learned to measure as yet. But you cannot discount the fact that if you ask your man in the street, your typical citizen, you know how they are coping with the lack of mobility,” he said.