BSP stresses need to ramp up vaccinations

MANILA, Philippines — The government needs to pick up the pace of vaccination rollout for a quicker recovery from the pandemic-induced recession and at the same time minimize economic scarring as the current policy space of monetary authorities is limited, according to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno.

“For the Philippines, we can minimize long-term economic scarring and see a quicker economic recovery if we could ramp up the vaccine rollout and limit widespread community transmission of the various COVID-19 variants,” Diokno said during the virtual 2021 BSP – Reinventing Bretton Woods Committee (RBWC) International Research Conference.

Unlike in past crises, Diokno explained the Philippines now enjoys both monetary policy and fiscal policy space needed to spur recovery from the COVID-induced economic recession.

To cushion the impact of the global health crisis on the economy, the BSP unleashed P2.3 trillion into the financial system through various COVID response measures.

Just like the rest of the world, the Philippines slipped into recession with a record gross domestic product (GDP) contraction of 9.6 percent last year.

With a theme “Shifting Gears, Changing Lanes: Central Banking in a Post-COVID Economic World,” Diokno told participants of the virtual conference about the importance of managing the economy to head-off economic scarring.

“Once the COVID-19 pandemic struck, central banks have to take swift and decisive actions, even without the benefit of full information, in order to maintain order in the financial markets and keep the economic ship on an even keel,” Diokno said.

The BSP chief pointed out liquidity crisis management is different from solvency or recession risk management.  “In our case, while our monetary and fiscal space is ample, we are aware that our current policy space is not unlimited. Hence, every step of the way, we at the BSP maintain an open and effective dialogue with our counterparts in government, the private sector, and society in general,” he said.

According to Diokno, central banks in emerging market economies need to explore better ways to prepare against possible economic scars arising from lockdowns and other mobility restrictions to protect lives, as well as other risks like climate change and rising income inequality.

Diokno warned loose monetary policy, as well as accommodative macroprudential policy and regulation, tend to cause potential bubbles in markets that could lead to macrofinancial risks and instability.

“Once the accommodations are phased out, more scars could emerge. On the other hand, premature tightening could forestall recovery and leave a trail of economic scars also,” Diokno said.

For his part, ING Bank Manila senior economist Nicholas Mapa said the Philippine economy remains stuck in low gear and clearly in need of additional support.

“Giving in to the itch and quickly reversing these support measures will inevitably backfire on the recovery process and work to undermine the full healing process for the shell-shocked economy,” Mapa said, citing pessimistic views from both businesses and consumers based on the latest surveys conducted by the BSP.

Mapa pointed out a premature reversal of support at this time of the healing phase could result in even deeper and uglier economic scars as gains from previous accommodation are reversed, sending the economy into a tailspin destined for economic depression.

“Patience and determination throughout the recovery and healing phase will be crucial as we avoid costly removal of support just when the economy needs it the most.  If we can’t ignore the itch, we may be in for an even longer recovery cycle as we delay the return to pre-COVID levels of growth further and further into the future,” Mapa said.