Loose monetary policy appropriate — BSP

1 Mins read

KEEPING an accommodative policy is still appropriate as inflation is expected to ease due to improving supply conditions, central bank officials said.

The Bangko Sentral ng Pilipinas (BSP) is expecting inflation to be within the annual 2-4% target range, although most likely at the upper end due to the rising global oil prices.

“We believe that the prevailing monetary policy stance remains appropriate especially as price pressures are expected to dissipate further with the continued implementation of non-monetary supply-side measures by the government,” BSP Governor Benjamin E. Diokno said at an online briefing.

The Monetary Board has kept the policy rate at a record low of 2% in its last policy review in June, citing the need to retain support as the new coronavirus variants pose risks to economic recovery.

Headline inflation in June slowed to a six-month low of 4.1% on easing transport prices and slower increase in the food price index, although it marked the sixth consecutive month of inflation beyond the 2-4% target.

Average inflation forecast for 2021 and 2022 are at 4% and 3%, respectively.

“Keeping an accommodative stance shall also help us counter risk aversion among banks which continue to temper credit activity despite liquidity in the financial system,” Mr. Diokno said.

Bank lending declined for the sixth straight month in May by 4.5%, as banks and borrowers remain cautious amid the crisis.

The BSP will have its next policy-setting meeting on Aug. 12.

Meanwhile, the central bank also noted that early signs of demand recovery were seen in the second quarter.

BSP Department of Economic Research Senior Director Zeno R. Abenoja noted the improvement in the manufacturing sector seen through the Purchasing Managers’ Index of IHS Markit as well as higher energy and vehicle sales.

“This shows a partial restoration of economic activity in both the manufacturing and services sector. This is a welcome development to our consumption-driven economy,” Mr. Abenoja said.

He noted the fast-spreading Delta variant is a key risk to the growth recovery outlook, as this may lead to a return to quarantine restrictions. — L.W.T.Noble

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