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Governor Benjamin Diokno of the Bangko Sentral ng Pilipinas (BSP) said on Thursday that the unwinding of monetary policy interventions requires correct timing, which is currently unknown for the Philippines.

Diokno argued that withdrawing monetary interventions is the first step before hiking the primary policy interest rates, using recent crises as examples.

In a video briefing, he remarked, “The timing of the exit is very much undetermined at this time.”

Further coronavirus disease 2019 (Covid-19) infections, according to Diokno, continue to be a downside risk to both growth and inflation in the coming months.

“As a result, we believe it is prudent to leave some room for flexibility in policies to account for uncertainty and risk, particularly given the current state of affairs,” he added.

To help soften the impact of the epidemic on the domestic economy, the BSP’s governing Monetary Board (MB) reduced the central bank’s key policy rates by a total of 200 basis points in 2020.

The rate decreases are intended to boost lending, ensuring that economic activity remains strong despite the difficult circumstances.

Banks, on the other hand, grew more hesitant about issuing loans as a result of the pandemic’s influence on borrowers’ ability to pay.

After contracting since late 2020, bank lending has begun to improve.

Aside from the rate decreases, the BSP also lowered the banks’ reserve requirement ratio (RRR) by up to 200 basis points and granted banks a grace period for lending to micro, small, and medium-sized companies (MSMEs).

Diokno previously stated that their pandemic-focused policy actions have so far totaled more than PHP2 trillion.

He added that the BSP’s withdrawal of pandemic policy responses will be determined by medium-term inflation and growth forecasts, as well as the risks associated with these forecasts.

“The BSP will continue to monitor the evolution of numerous local factors, as well as new global developments and potential spillovers, in line with its data-driven approach to policymaking.” The BSP would ensure a smooth transition in winding down its time and state-bound measures when these developments merit it as the economic recovery gets steam,” he added.

For one thing, inflation has maintained its recent decrease, which began in September 2021 when it decelerated to 4.8 percent from 4.9 percent the previous month.

Last December, the rate of price rises fell even more to 3.6 percent, down from 4.2 percent the month before, bringing the year-to-date average to 4.5 percent.

Despite the fact that average inflation last year was higher than the government’s target range of 2% to 4%, monetary authorities expect it to fall near the target’s midpoint until next year.

“Striking a delicate balance between giving enough stimulus to the economy and preventing the build-up of inflationary pressures and dangers to financial stability,” Diokno added, is one of the variables that would be considered in the withdrawal of policy initiatives.

“Given the nascent economic recovery, the BSP’s objective is to ensure the recovery’s sustainability and avoid long-term scarring consequences,” he said.

He emphasized the necessity of fiscal policy during the recovery phase of the economy, particularly when the central bank begins to unwind its monetary measures.

“This is to guarantee that the rebound in domestic demand does not lead to excessive inflation or financial stability issues,” he said, adding that the BSP would continue to work with the national government to manage the pandemic’s impact on the home economy.

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