MANILA - The Bangko Sentral ng Pilipinas said there are limits to how long the country can keep government spending high and interest rates low to support the economy amid the continuing disruptions of the pandemic.
BSP Governor Benjamin Diokno said that the central bank is aware that the pace of economic recovery is going to be different—both between advanced and emerging economies and even among emerging market economies.
Diokno said that some emerging markets have ample monetary and fiscal space while others don’t.
“In our case, while our monetary and fiscal space is ample, we are aware that our current policy space is not unlimited,” the BSP chief said on Monday during a conference with other central bankers.
Diokno has maintained that the Philippines’ monetary policy will continue to be accommodative until the country’s economic recovery has become more stable. But keeping interest rates low longer than needed has its risks, he said.
“Loose monetary policy and accommodative macroprudential policy and regulation tend to engender potential bubbles in markets that could lead to macrofinancial risks and instability. Once the accommodations are phased out, more scars could emerge,” Diokno said.
But he also said raising interest rates “prematurely” has its own risks.
“On the other hand, premature tightening could forestall recovery and leave a trail of economic scars also.”
The BSP has kept its key rate at a record low of 2 percent for 7 consecutive policy meetings already, and analysts expect the central bank to hold off on rate hikes until the middle of next year.
Quickly vaccinating the population remains key to recovery and avoiding long-term economic damage from the pandemic, Diokno said.
"For the Philippines, we can minimize long-term economic scarring and see a quicker economic recovery if we could ramp up the vaccine rollout and limit widespread community transmission of the various COVID-19 variants.”
Diokno delivered the opening statement at the 2021 BSP-Reinventing Bretton Woods Committee International Research Conference Monday.
The topics of the conference include central banking and dealing with the enduring impact of COVID-19, The new Monetary Policy Era of Emerging Markets, and a keynote lecture on Central Banking in a Post-COVID economic world.
The conference will run until September 29, and will feature most of the BSP’s top officials, as well as central bankers and development bank chiefs from around the world.
Diokno said he is looking forward to the conference to learn more about what steps might be needed moving forward.
Many of the attendees at the BSP-RBWC International Research Conference 2021 will also be attending the IMF-WB annual meetings, set for October 11 to 17.