No rate adjustments for the rest of 2021 — Diokno

Ramon Royandoyan - Philstar.com
No rate adjustments for the rest of 2021 â Diokno
Bangko Sentral ng Pilipinas Governor Benjamin Diokno
Geremy Pintolo, file

MANILA, Philippines — It is unlikely that the Bangko Sentral ng Pilipinas would make any adjustments to its ultra-loose monetary policy for the rest of the year, with Governor Benjamin Diokno warning against any premature tightening as recovery remains fragile.

The powerful Monetary Board is scheduled to hold two more meetings in 2021 — one in November and the other in December — and “it would appear there won’t be any policy rate adjustments between now and the end of the year,” Diokno said in an interview with ABS-CBN News Channel on Monday.

After nearly two years of relaxed monetary policies, which recharged economies from a pandemic-induced crash and sent stocks rallying, soaring prices have prompted some of the world’s central banks to begin hiking rates to prevent their economies from overheating and stem a currency slump.

Several have already started their belt tightening — including South Korea and New Zealand, with Singapore following suit last week — but all eyes are on the Federal Reserve, which appears to be planning to make its move either next month or in December.

At home, the policy rate has stayed at record-low 2% since November last year, and Diokno’s remarks means monetary policy settings will remain ultra-loose for much longer.

Following a brief return to hard lockdown in August amid a Delta variant-fueled surge in cases, economic officials said the economy will only start opening up in the fourth quarter, adding that their 4-5% growth target for this year is still doable.  For Diokno, a premature end to the BSP’s era of cheap cash could be extremely damaging to the “nascent” recovery.

“I’ve made that very clear that the harm from early monetary tightening exceeds the harm of moving too late,” the BSP chief said.

What convinces Diokno to hold off any rate hikes is a “transitory” inflation spike. Data showed inflation remained elevated but eased to 4.8% in September, and analysts warned that the deceleration in price growth is only temporary amid rallying oil prices and damage from typhoons.

Although he admitted that risks to the inflation outlook “appear to be on the upside over the near term,” Diokno argued that the problems are mainly on the supply side that cannot be fixed by tweaking monetary policy. There is no pressure on the demand side, he added, and a sharp currency slump that could fan inflation is unlikely to happen thanks to the hefty dollar reserves.

“We feel that this crisis is different from previous crises that are the same. We have hefty gross international reserves equivalent to $108 billion. We get fresh support from remittance and BPO receipts, exports, and foreign direct investments,” Diokno said.

“We’re fairly comfortable we don’t need to raise interest rates at this time."




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