The Bangko Sentral ng Pilipinas (BSP) is unlikely to discuss its exit strategy for the coronavirus disease 2019 (Covid-19) anytime soon, as monetary authorities remain data-driven in crafting policies, according to Governor Benjamin Diokno.
“The short answer is ‘no,’ it is too early to talk about an exit strategy at this time,” he told reporters during a virtual press briefing on Wednesday when asked if now is the right time for such action.
Diokno said the timing of the central bank’s exit strategy is critical and will essentially depend on a number of factors such as the outlook on inflation and output, liquidity and credit conditions, financial sector risks, state of public health, as well as global developments and spillovers.
For instance, he added, any adjustment of the key policy rate will remain contingent on the outlook for inflation and economic growth.
“The BSP looks at demand- and supply-side factors that potentially can have an impact on the inflation outlook, including liquidity and credit conditions, agriculture, weather, oil market developments, and inflation expectations,” Diokno underscored.
In February, the Bangko Sentral kept its key interest rates for overnight borrowing, lending and deposit at their record low of 2.00 percent, 1.50 percent and 2.50 percent, respectively, as monetary authorities stressed that inflation expectations continue to be anchored within the target band.
On financial sector risks, Diokno said the central bank also watches for any emerging risks to financial stability, including the build-up of imbalances in asset markets.
“Before the pandemic, the BSP had already put in place various macroprudential measures and introduced new monitoring tools to help safeguard against asset price bubbles,” he continued.
The Bangko Sentral chief added the central bank also set up active liquidity management facilities such as the term deposit facility and BSP securities, that will allow the monetary authority to quickly absorb excess liquidity from the financial system if needed.
“These instruments will help us temper the risk of asset price inflation or excessive risk-taking behavior,” he also emphasized.
On the state of public health, Diokno said, a continued reduction in virus transmission and more rapid deployment of vaccines can help boost consumer and business sentiment, which may lead to a faster economic recovery.
“We also look at external risk factors, including global economic growth and shifts in monetary policy in major economies… and assess how they can impact domestic financial and growth conditions,” he also highlighted.
Nevertheless, Diokno said the Bangko Sentral recognizes the importance of thinking ahead and having a well-timed exit strategy.
“Having a carefully formulated exit strategy from policy measures against the effects of Covid-19 enables the BSP to have a clear guide to future actions when the economy fully recovers growth and becomes sustainable.”
“That said, the BSP monetary policymaking remains data driven, and the timing of the exit from stimulus will primarily depend on the future trajectory of domestic inflation and economic growth,” he noted.
In line with this, he said the central bank continues to actively actively take part in international discussions that tackle central banks’ policy interventions and exit strategies in the post-pandemic period.
“We participate in international fora on Covid-19 exit strategies because alongside a well-coordinated national policy, joint measures at the global level can help bring about a stronger and more sustained economic recovery,” Diokno pointed out.
Among these fora are the BIS Small Open Economy Virtual Conference, APEC Finance and Central Bank Deputies’ Meeting, and Asean+3 Finance and Central Bank Deputies’ Meeting. Asean is the Association of Southeast Asian Nations.