(STAR) By Des Ferriols - Bangko Sentral ng Pilipinas (BSP) officials said yesterday the country’s economy is responding well to the monetary actions taken so far by the Monetary Board.

Although it would normally take at least 12 months for monetary policy actions to filter through the financial system and into the real economy, the BSP said the effects of last year’s monetary policy actions are already being felt.

Since the onset of the global recession, the BSP has allowed over P500 billion in liquidity to flood into the economy to prevent credit from drying up amid fears of rising defaults.

But in a recent statement, the World Bank said stimulus packages should be withdrawn as soon as the impact has been felt, warning that failure to unwind aggressive measures would ultimately cause inflation.

According to BSP Deputy Governor Diwa Guinigundo, however, this was already under consideration by the MB as it continues to weigh its options amid slowing growth, falling inflation rate and the possibility of wage and transport fare adjustments.

World Bank chief economist for East Asia Ivailo Izvorski had suggested that stimulus packages should be pulled out once their impact has been felt to prevent a spike in inflation.

“He is talking of exit strategy and that is essential as a forward-looking policy,” Guinigundo said, when asked to comment on the WB’s suggestion.

Guinigundo agreed that excessive money supply could lead to higher inflation. “Assuming all other things are equal,” he cautioned.

In the Philippines, however, Guinigundo said money growth has so far been “reasonably manageable.”

According to Guinigundo, monetary officials had the elbow room to manoeuvre monetary policy when the Monetary Board meets especially since the inflation rate was coming down from a high of over 12 percent in the third quarter last year.

“We can easily review monetary policy based on inflation outlook,” Guinigundo said. “We do this every six weeks so we are ahead of the curve.”

The market is widely expecting the BSP to remain neutral on its monetary policy stance when the MB meets to discuss policy after the Lent. Although usually reluctant to touch its policy rates, the BSP has so far eased its rates back to early 2008 levels after a tightening cycle that added 150 beeps to its overnight rates.

The most recent rate cut brought the policy rate closer to the historical low of 4.125 percent but the BSP’s recent pronouncements indicated no clear direction on what it might do next.

There have been suggestions that the BSP might actually shut down its special deposit accounts as part of its economic stimulus measures but the BSP has all but ruled this out, saying that the facility would remain open as long as needed by the market.

Corporate borrowers opting to raise funds from the equities market have complained that the BSP’s SDAs were absorbing too much funds from the system but monetary officials said this was not the case.

Guinigundo earlier said there were no indications of waning need for the SDA facility and the central bank would take its cue from shifts in supply and demand factors.

Chief News Editor: Sol Jose Vanzi

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