Government pursuing pro-growth monetary policy

MANILA, Philippines — Monetary policy can be pro-growth as monetary authorities are also mindful about challenges confronting the economy, the National Economic and Development Authority (NEDA) said.

NEDA Undersecretary for Policy and Planning Rosemarie Edillon said while the Bangko Sentral ng Pilipinas (BSP) is still in a balancing act of responding to decelerating inflation and paving the way for the growth and stability of the financial sector, monetary authorities are aware of the need to promote a steady growth in the economy.

“We will account this pronouncement that they will be pro-growth. We actually never doubted it from the start because they were actually with us whenever we’d meet in the DBCC so they are all aware of the challenges that we are facing with respect to propping up the growth of the economy,” Edillon said during the recently-held Economic Journalists Association of the Philippines (EJAP)-Aboitiz Economy InFocus forum.

“We respect the independence of the central bank and we are happy nonetheless of the moves they are making,” she added.

As inflation decelerates, the BSP has so far unwound some of the policy tightening last year by cutting policy rates by 25 basis points in May.

The BSP also brought down the reserve requirement ratio (RRR) for universal and commercial banks by 200 basis points to be implemented in three stages starting with 100 basis points effective May 31, followed by 50 basis points on June 28, and another 50 basis points on July 26.

Medium and small banks also got RRR cuts to six percent from the current level of eight percent in three tranches similar to the schedule for universal and commercial or big banks.

The market has so far taken this to mean the start of a dovish stance on the part of the BSP, with many banks and credit watchers forecasting further cuts in the policy rates and reserve requirements for banks.

The policy rate cut came immediately after economic growth slowed down to 5.6 percent in the first quarter – the slowest in 16 quarters – weighed down by diminished government spending as a result of the reenactment of last year’s budget in the first four months of the year.

However, Moody’s senior credit officer Christian de Guzman said it may be too early to say that the BSP has shifted to a dovish stance because it is only responding to movements in inflation.

“The fact that inflation has come down to the lower part of the target band has given them space to ease policy,” he said.

“But let’s also not forget that the policy tightening was 175 basis points. So the easing so far is 25 basis points. So I don’t think it’s quite precise to say that they are in easing mode yet because conditions continue to be tighter than this time last year,” he added.

Even the reduction in the RRR, he said, is only a continuation of the policy laid down by the late former BSP governor Nestor Espenilla Jr.

“The cuts in the reserve requirement were always meant to be administrative in nature and were really an initiative from the previous governor. So it’s a continuation of policy. So what we see really on both front, is a continuation of BSP’s policy. Nothing material has changed from our perspective,” said De Guzman.

Unionbank chief economist Carlo Asuncion said the  banks recognize the increased possibility of further monetary easing as they also understand that the BSP wants the monetary policy stance to be consistent with price stability.