Philippines: BSP eyes possible normalization by 2nd half

• Feb 21, 2022

MANILA, Philippines — Possible normalization in monetary policy, such as an increase in interest rates, my start by the second half as the output gap caused by the pandemic is expected to close in the second semester, according to the Bangko Sentral ng Pilipinas.

BSP Deputy Governor Francisco Dakila Jr. said that the manageable inflation, as well as the continued recovery of the economy from the pandemic-induced recession, gives the Monetary Board room to maintain an accommodative policy stance.

“Our estimates under the output gap could close in the second half of this year and then it will turn positive thereafter,” Dakila said.

After slipping into recession in 2020, the economy bounced back with a GDP expansion of 5.6 percent last year.

Economic managers are expecting a faster GDP growth of between seven and nine percent for this year.

Despite the possible emergence of demand-driven price pressures when the output gap closes, Dakila said inflation may settle within the two to four percent target over the policy horizon or at 3.7 percent for 2022 and 3.3 percent for 2023.

There is enough head room for continued accommodative monetary policy in the near term, with possible normalization to begin toward the second half of 2022, he said.

BSP Governor Benjamin Diokno said the central bank would continue to carefully  develop its plans for the eventual normalization of its extraordinary liquidity measures when conditions warrant, given the stronger signs of recovery in output growth and labor market conditions as well as improvements in domestic financial markets.

Source: https://www.philstar.com/business/2022/02/21/2162147/bsp-eyes-possible-normalization-2nd-half