New BSP chief softens stance on monetary easing

The Philippines’ new central bank chief—on his second day on the job on Friday—said he preferred to wait for fresh data to confirm that the inflation rate was indeed on a downtrend before pushing for a reduction in interest rates or bank reserve requirements.

In his first press briefing as the country’s top financial regulator, Bangko Sentral ng Pilipinas Governor Benjamin Diokno softened his aggressive pro-monetary easing rhetoric aired earlier in the week immediately following Malacañang’s announcement of his appointment.

“I did not make those statements right here, right? I made those statements in my other capacity [as the former budget secretary], remember that?” he said when asked about his comments last Tuesday that “BSP’s role is to ensure steady, strong growth” in addition to its traditional task of fighting inflation and, to achieve this, “monetary policy has to be in sync with fiscal policy.”

Diokno stressed that, while he still believed that Philippine banks’ reserve requirements— currently at 18 percent of their total deposits, the highest in the region—should be reduced sharply, the timing of any such move would be determined together with the six other members of the BSP’s Monetary Board.

“Our policy will be determined by a clear analysis that will be data-driven and evidence-based, and it will be decided on by the board,” he said. “I cannot, on my own, decide on the cut of the reserve requirement. But that will be taken up by the board as a collegial body.”

Last year, the central bank reduced banks’ reserve requirement ratio by 200 basis points, freeing up almost P200 billion in cash that could be used more productively as loans by financial institutions.

The late Governor Nestor Espenilla Jr. said the ideal reserve level for banks was in the single-digit level as the funds could be better employed to feed the growing Philippine economy. But his drive to cut bank reserves was derailed by a sudden spike in the inflation rate last year, which required the central bank to raise interest rates by a total of 175 basis points.

Diokno—who had earlier excited financial markets with the prospect of cheaper funds that buoyed the local stock market and put pressure on the peso—toned down his enthusiasm for immediate aggressive action, saying the “well represented, very wise and old” Monetary Board would decide together on policy “based on data, evidence and the situation at that time.”