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No trade-off between monetary accommodation and financial stability —Diokno
By JON VIKTOR D. CABUENAS,GMA NewsThere is currently no trade-off between monetary accommodation and financial stability even as inflation has continued to accelerate while policy rates remain at record lows, the Bangko Sentral ng Pilipinas (BSP) said Thursday.
BSP Governor Benjamin Diokno said inflation is not demand-driven and is mainly due to supply-side issues, with the latest data showing that consumer prices rose by 2.9% in January to mark the fastest pace in over a year.
Meanwhile, policy rates are currently at record lows: the overnight reverse repurchase (RRP) facility at 2.00%, the overnight deposit at 1.5%, and the overnight lending facility at 2.5% following a series of cuts imposed last year.
The central bank reduced policy rates by 200 basis points in 2020: 25 basis points in February; 50 basis points each in March, April, and June; and another 25 basis points in November
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Lower policy rates unleash liquidity into the financial system, with some P1.9 trillion released in 2020. This, in turn, could drive inflation pressures upward but Diokno said that higher consumer prices are being caused by supply issues.
"At this juncture, the BSP believes that we are not experiencing a trade-off between accommodative monetary policy and financial stability," Diokno told reporters in a virtual briefing.
"This is based on three factors. First, the uptick in inflation in January 2021 is attributed primarily to transitory supply-side pressures," he added.
There has been an uptick in prices of agricultural goods such as pork, due to the limited supply caused by the African swine fever (ASF) outbreak. The Department of Agriculture (DA) has since implemented a price cap and a suggested retail price (SRP) in efforts to lower prices.
"Second, BSP measures are aimed at ensuring economic recovery and limiting the pandemic’s potential scarring effects in the long run. Third, there is no evidence of increased risk-taking by financial institutions at this time," said Diokno.
Latest data available showed that outstanding loans of universal and commercial banks, net of reverse repurchase (RRP) placements with the central bank, fell by 0.7% in December after posting a 0.5% growth in November.
Still, Diokno said credit activity is expected to gradually improve in the coming months as the vaccination program in the country gets underway. Issues on procurement, however, are still being addressed by the administration.
"The BSP shall remain vigilant to help ensure that its policy responses will neither lead to excessive inflation nor result in threats to financial stability," he explained. — BM, GMA News