Delta variant spread could delay Fed policy shift: BSP chief

Warren de Guzman, ABS-CBN News

Posted at Jul 15 2021 05:06 PM

Delta variant spread could delay Fed policy shift: BSP chief 1
The Federal Reserve building is pictured in Washington, DC, U.S., August 22, 2018. Chris Wattie, Reuters file photo

MANILA - The spread of COVID-19’s delta variant could delay moves by the US Federal Reserve to shift monetary policy, the head of the Bangko Sentral ng Pilipinas said on Thursday. 

BSP Governor Benjamin Diokno said that if the delta variant evolves into a “significant rsk” central banks, including the Fed, are likely to delay the removal of support. 

COVID-19 cases have risen rapidly in the US, with the highly contagious Delta variant now accounting for 52 percent of cases in the two weeks ending July 3, according to the US Centers for Disease Control.

Fed officials meanwhile began talks last month about when and how to exit from the crisis-era policies the US central bank put in place at the onset of the coronavirus pandemic last year.

"While the US economy is seen to rebound strongly, supported by fiscal stimulus and rapid COVID-19 vaccine rollout, a US rate hike could put additional pressure on emerging economies’ financial markets by way of lesser capital inflows, or capital outflows, caused by yield-seeking behavior into US-denominated treasuries, which in turn result to currency depreciation,” Diokno said. 

“At this point, however, we believe that many central banks including the Fed, are likely to remain patient in lifting monetary accommodation given the continued downside risks to output and to provide support to economic recovery amid the COVID-19 health crisis,” he added. 

Diokno said the BSP is going to stick with its accommodative monetary policy settings until they see hard evidence of a self-sustaining economic recovery. 

The BSP chief also said earlier this week that a rate hike by the Fed will cause a lot of problems for other emerging economies but not for the Philippines because of the country’s hefty foreign exchange reserves.

Diokno meanwhile also said that while the Delta variant is not yet a problem in the Philippines, the government must speed up the vaccination program, and strengthen border control, to ensure that the highly infectious variant doesn’t cause issues here.

Diokno also revealed the BSP is again lending P540 billion to the National Government. It is the fourth time the BSP has extended such a loan to the Duterte administration. The last loan, a P540 billion loan extended to start 2021, has already been paid back in full.

Earlier this week, Fitch Ratings warned the BSP’s lending to the government to finance the budget deficit could pose a risk to policy credibility if this continues “beyond the immediate needs of the health crisis.”

Fitch however also said the Philippines' external finances remain a credit strength. 


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