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BSP WPS 2020-05: Shifting macroeconomic landscape and the limits of the BSPís pandemic response

Across the globe, containment and mitigation measures implemented in response to the COVID-19 health crisis led to immediate decline in economic activities and temporary disruptions in financial markets. This was evident in the experience of the Philippines. To support the immediate needs of the real economy and preserve market confidence during the pandemicinduced economic crisis, the Bangko Sentral ng Pilipinas (BSP) simultaneously deployed its conventional and unconventional monetary policy tools to complement the efforts of the National Government (NG). Being the regulator/supervisor of banks and quasi-banks, the BSP also implemented a comprehensive set of regulatory and forbearance measures. In deploying crisis-response measures, prudence requires that certain principles be observed, and specific limits be recognized. First, price stability, complemented by financial stability, is a key consideration when undertaking market interventions during periods of crises. Second, it is crucial to maintain central bank independence. Third, central bank policies must be implemented with limiting moral hazard in mind. Finally, the central bank should not compromise its policies in the short run. Exercising flexibility is essential, but consideration of the central bankís credibility, scope for conventional policies, and the financial systemís long run stability should put a limit on how extraordinary the responses can be. Consistent with these principles, the BSP has been circumspect not to undermine the stability of the financial system and the BSPís hard-earned credibility and independence. Moving forward, the BSP remains attentive to challenges and evolving developments. It stands ready to deploy additional policy measures, supported by evidence-based assessment of overall economic conditions.

Bangko Sentral ng Pilipinas
Authors Keywords
Glindro,Eloisa, T.; Parcon-Santos, Hazel, C. ; Cacnio, Faith Christian, Q.; Oliva, Marites, B.; public health, monetary policy, central bank, fiscal policy, crisis management, bank regulations;
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