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Diokno cites importance of inflation-targeting

Benjamin Diokno
Benjamin Diokno

The Bangko Sentral s inflation-targeting framework provides monetary authorities the flexibility on its policy stance, which is aimed to ensure price stability that is beneficial to sustainable growth and employment.

“This is critical during this pandemic, when changes in economic conditions tend to be abrupt and unpredictable, and tend to have lingering effects,” BSP Gov. Benjamin Diokno said in a virtual press briefing.

Diokno said while the BSP has the scope to pursue sustainable growth and employment, managing the rate of price increases continues to be the central bank’s primary objective.

“We believe that ensuring low and stable prices will help facilitate economic recovery, and in the process, bring about sustainable growth. In turn, sustainable growth helps in the creation of employment opportunities over the medium term,” he said.

He said the current crisis limited what monetary policy and unconventional BSP measures can do since for one, private spending is limited by, among others, the low interest rate and weak demand.

“However, fiscal policy plays a critical role during the pandemic as it can respond in a more targeted way to the most affected sectors of the economy. Overall, the Covid-19 health crisis underscores the need for a whole-of-government approach to combatting the pandemic,” the BSP chief said.

With inflation expected to remain benign over the policy horizon, Diokno said BSP’s monetary policy would continue to provide policy support to the domestic economy “until a firm recovery gets underway”.

“Our inflation-targeting framework continues to ensure that the inflation target over the policy horizon remains consistent with the country’s economic circumstances,” he said.

He added: “Enhanced transparency and accountability associated with the inflation-targeting approach has contributed to anchoring of market inflation expectations to monetary policy decisions even amid this period of elevated uncertainty.”