MANILA – Easing inflation rate gives the Bangko Sentral ng Pilipinas (BSP) leeway on its policy decisions but monetary officials need to step back for now to check if their recent aggressive measures are being absorbed by the financial system.
In a Viber message to journalists Monday, Diokno said “it would be prudent on the part of the MB (Monetary Board) to see how the aggressive policy measures it has adopted have been absorbed by the financial system.”
Diokno said monetary policy “works with a lag.”
Monetary officials said the lag of BSP’s policy decision is about 12 to 18 months.
“Notwithstanding, the BSP will continue to monitor market conditions to any emerging risks to the outlook for both inflation and economic growth thus, ensure its resolve to deploy necessary policy responses and measures, if warranted,” he said.
Since the start of the year, the policy-making MB has reduced the central bank’s key rates by a total of 125 basis points as inflation continues to decelerate and to help buoy the economy from the impact of the coronavirus disease 2019 (Covid-19) global pandemic.
Rate of price increases last January posted an uptick to 2.9 percent from the previous month’s 2.5 percent.
However, it declined to 2.6 percent in February and to 2.5 percent last March.
Inflation in the first quarter this year averaged at 2.7 percent, within the government’s 2 to 4-percent target band for the year.
Diokno said a poll for the April 2020 inflation rate resulted in a median estimate of 2 percent “which if realized means the third successive month of falling inflation this year.”
He said the BSP’s average inflation forecast for this year is 2.2 percent, lower than the central bank’s overnight reverse repurchase (RRP) rate.
Deceleration of inflation rate gave the MB room to cut key rates, among others, but he added the MB also needs time to assess the impact of their policy measures to date.
Aside from reducing the key policy rates, the MB also cut universal and commercial banks’ (U/KBs’) and non-bank financial institutions with quasi-banking functions (NBQBs) reserve requirement ratio by 200 basis.
It has also allowed banks’ loans to micro, small and medium enterprises (MSMEs) as alternative compliance to RRR to lessen banks’ financial burden on loans to the sector.
Diokno said they also lowered the credit risk weights on current loans extended to MSMEs from 75 percent to 50 percent for qualified MSMEs, and 100 percent for non-qualified MSMEs portfolio.
The lower credit risk weight “will be subject to review by end December 2021,” he said.
“This will enable BSP to assess its effectiveness in channeling funds to the MSME sector before evaluating whether further easing is warranted,” he added. (PNA)
