‘DOVISH’ DIOKNO: PH WILL NOT MOVE IN UNISON WITH US FED PLANS

Philippine monetary policy will be adjusted based on actual developments in the country rather than driven by outside influences such as moves by the US Federal Reserve, according to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno.

Diokno reiterated this when asked by New York-based think tank GlobalSource Partners whether the BSP was ready for when the US central bank moves to raise and normalize their policy rates, which analysts were expecting to start this year.

“For the Philippines, we do not necessarily have to move in step with the monetary policy adjustments of the US Fed,” the BSP chief said.

Diokno said the BSP calibrated its monetary policy settings in response to external developments only to the extent that they influence the outlook on growth and inflation.

“Moreover, the BSP has various tools, such as, for example, flexible exchange rate system, hefty external buffers, macroprudential policy framework and liquidity enhancing and management tools,” he added.

Separately, ING Bank Philippines senior economist Nicholas Mapa noted that Diokno was vowing to maintain an accommodative stance “for as long as necessary” to ensure a sustainable growth trajectory.

In the last policy meeting held in December, the Monetary Board which Diokno chairs decided to keep the policy rate at a record low of 2 percent.

“Diokno has remained dovish even in the face of imminent rate hikes from the Federal Reserve and other central banks, ruling out rate hikes for at least the first half of the year,” Mapa said. “Despite these dovish undertones from Diokno, we have penciled in a salvo of rate hikes from the BSP with the first adjustment as early as the second quarter.”

In his interview with GlobalSource, Diokno acknowledged that the BSP was aware of how other central banks were acting and their potential impact on the domestic economy.

Diokno said many Latin American and European central banks, and even a few Asian central banks, have started the tightening process. On the other hand, China has moved in the opposite direction.

For ING’s Mapa, the January inflation reading and more importantly the revision to 2021 inflation appears to have given the BSP a little more space to retain its accommodative stance.

The Philippine Statistics Authority has started using a new base year for reckoning the inflation rate—from 2012 to 2018. The result is a 3-percent inflation in January, and an average of 3.9 percent for 2021.

This means that the government hit its target herding inflation within the range of 2 percent to 4 percent. Using 2012 prices as benchmark, inflation in 2021 was pegged at 4.5 percent, beyond the higher end of the goal.

“Persistent inflation pressure coupled with the likely reversal in financial flows linked to Fed hikes could eventually convince a rather dovish Diokno to finally consider a policy adjustment by the end of this [semester],” Mapa said.