New BSP chief Espenilla: Inclusive growth a priority through sustained reforms
Bangko Sentral ng Pilipinas Governor Nestor A. Espenilla Jr. PDI PHOTO / JOSEPH AGCAOILI
As the Bangko Sentral ng Pilipinas under his watch aspires to achieve “truly inclusive growth” through financial inclusion and a market-oriented monetary policy, Governor Nestor A. Espenilla Jr. in his first day as the top man tasked to keep prices low and supportive of economic expansion pledged “continuity plus plus” in reforms and sought support from his central bank family.
In his first speech as BSP Governor and Monetary Board Chair for a six-year term until 2023, Espenilla expressed gratitude to his mentor and predecessor, the multi-awarded Amando M. Tetangco Jr., who served an unprecedented two six-year terms as BSP chief.
“Governor Say, I am truly grateful for your mentoring all these years. Yours are truly big shoes to fill and I am thankful that I am inheriting such an exemplary and world-class institution,” Espenilla said, referring to Tetangco in his nickname.
Moving forward, Espenilla said: “I dedicate my term as BSP Governor to building and leveraging on this legacy of excellence.”
“We shall endeavor to fulfill our core mandates with greater vigor and integrity to ensure that both the economy and the financial system remain strong, stable, and resilient so that they facilitate transformational opportunities for all,” Espenilla said.
The BSP chief noted that while “the Philippines continues to experience strong economic performance amid a stable macroeconomic and financial environment,” such growth can truly be meaningful only if it was inclusive, creating jobs as well as improving the people’s welfare.
“The BSP has been promoting reforms in the macroeconomic and financial sectors, but we know that these are not enough. We have to push the envelope further. This is why the BSP has been passionate in its pursuit of its financial inclusion advocacy. We need to work on bringing central banking operations closer to the people. This would entail strengthening our commitment to advance our financial inclusion, financial education, and consumer protection agenda to ensure that no one is left behind,” Espenilla said.
“Our policy agenda is therefore geared towards a truly inclusive, strong and dynamic financial system that is fully responsive to the needs of the domestic economy in line with the government’s medium-term development plan and the AmBisyon Natin 2040,” Espenilla added, referring to the Duterte administration’s aim to slash poverty incidence to 14 percent by 2022 as well as vision to make the Philippines a high-income country by 2040.
But Espenilla cautioned that despite sound macroeconomic fundamentals, “We need to be mindful of potential sources of vulnerabilities.”
“The year 2016 saw the unfolding of unexpected global events that have escalated the level of policy uncertainty and market volatility. We have to be prepared as well for the seemingly imminent wind-down of ultra-easy monetary policies in advanced economies. We need to be mindful of such events and their potentially far-reaching consequences since these could undermine our economic performance and disrupt our carefully-laid plans,” Espenilla noted.
“Moreover, rapid technological innovations in the delivery of financial products and services are changing business models. Digital innovation is rapidly re-shaping financial services as we know it to serve a new breed of financial consumers who are young, upwardly mobile, technology-savvy, and have exacting demands for the convenient delivery of financial products and services,” the BSP chief added.
“We cannot also be blind to the dark specter of cyber-crime that can quickly undermine trust in our financial system. There is no substitute for eternal vigilance, timely action, and public education. We are all in this together and have a shared responsibility,” according to Espenilla.
To bring central banking closer to the people, Espenilla said “the BSP will continue to fine-tune our execution of monetary policy to make it even more market-oriented.”
“We have already started with the deployment of the interest rate corridor (IRC) system. Over time, the IRC is expected to aid in advancing the development of the domestic money and capital markets based on greater reliance on the use of market- friendly instruments. In the same vein, we will work closely with other government agencies and private sector stakeholders to accelerate capital market reforms, including the development of the necessary financial market infrastructures that provide orderly trading, clearing and settlement of the full range of financial transactions,” Espenilla said.
Launched in June last year, the IRC was ultimately aimed at bringing market rates closer to the policy rate of 3 percent.
The BSP chief later told reporters that the BSP will be looking into tapping the wide range of available tools for the conduct of monetary policy, including a possible cut in the reserve requirement during an “appropriate time frame.”
“It’s not going to happen immediately, but it has to be within a reasonable range because it is important—we have one of the highest in the world; it is an inefficiency to the financial system,” Espenilla said.
“We need to find a path to lower the reserve requirement without compromising price stability. We are having engaged discussions on that. I’d like to see that happen, but it is a discussion in the Monetary Board,” Espenilla added, referring to the BSP’s highest policymaking body.
The reserve requirement ratio currently stands at a high 20 percent, which means that for every P1 of deposits and deposit substitutes generated by banks, regulators require that 20 centavos be set aside as buffer, representing the portion that banks cannot lend out.
Also, Espenilla said “we intend to further open up competitive opportunities to lower the cost of doing business, provide more customer choices, promote efficiency, and encourage innovation” as the BSP leverages on “the much-improved and continuously improving governance and risk management practices of banks and other supervised financial institutions.”
“There are also vital pieces of legislation that we strongly support. We will advocate for their timely enactment. These include the amendment of the BSP Charter, the passage of the Payment System Act and the Islamic Banking Act, and the easing of the deposit secrecy laws. We also join the initiative for the further strengthening of the Anti-Money Laundering Act to win the fight against money laundering and terrorist financing and thus secure the integrity of our financial system,” Espenilla said.
“We must likewise do our part and remain focused in pursuing comprehensive reforms to enable our economy to position well in the rapidly integrating Asean regional economic system,” the BSP chief added.
But Espenilla said he cannot continue the reform agenda alone, hence solicited support from his colleagues at the BSP.
“Central banking requires similar exemplary and coordinated ability to navigate the currents of the global financial markets. We need to build on the trust, loyalty, integrity, and dedication to excellence of each member of Team BSP to achieve our given mandates, advocacies and collective vision. This is crucial in order for us to thrive given the evolving demands of modern central banking,” Espenilla said.
“My fellow BSPers, I have been given the immense honor and privilege of being your new team captain. Believe me when I say that this is a role that I do not take for granted. However, I need your prayers and support, too. They say that it can be lonely at the top. From that vantage point, national issues and high-level problems may overshadow the needs and concerns of the BSP community. Even when the going gets tough, my fervent wish is that I never lose sight of where I came from. Ako ay laking BSP. Ang aking husay at lakas ay galing sa BSP. I therefore owe it to all of you to stay connected and to continue serving the BSP community even as we all serve our country with skill, honor, integrity, and accountability,” according to Espenilla.
