Monetary policy considerations

PHILIPPINES - In Brief 21 Dec 2021 by Romeo Bernardo

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Although central banks around the world pursued similar strategies of pouring monies into their economies in the wake of the pandemic, it is clear from their divergent moves this year that there is no one-size-fits-all exit strategy. With the most-watched central bank, the US Fed, signaling readiness to move from a swifter tapering of asset purchases to three policy rate hikes in 2022 starting possibly as early as March, is it time for the BSP to also start talking about shifting gears? In our last Forecast report[1], we said that the BSP does not need to follow US monetary policy moves lockstep. Thus far, the BSP continues to exercise this policy independence with decisions mainly based on domestic growth vs. inflation considerations. More specifically, in the press statement following last week’s Monetary Board (MB) meeting, we took “keep a patient hand” to mean that the top priority is to “help sustain the economy’s momentum over the next few quarters,” particularly in light of downside risks from Omicron. Considering authorities’ view of a within-target inflation path over the policy horizon, less weight is placed on inflationary concerns although the upside risks are prominently discussed. Meanwhile, the goal of financial stability which comes into focus whenever there are sharp fluctuations in financial asset prices, got what amounts to an honorary mention.On the whole, our view early this month remains valid especially with markets calmly receiving the news of an earlier US Fed tightening. We think the BSP will stay the course for at least a couple of quarters more and in the context of the impossible trinity, allow the peso to depreciate which is a boon for the...