BSP Gov. Diokno in CTB convention

In the Chamber of Thrift Banks convention last March 29 at the Makati Shangri-La, newly-appointed Banko Sentral ng Pilipinas (BSP) Governor Diokno was the main speaker. There was a large crowd of bankers and businessmen as they were eager to hear some hints of the policy directions that the new BSP governor will pursue in the coming months and years as he was previously the budget secretary, and had expansionary leanings in both fiscal and monetary policies to support the growth agenda of the Duterte administration.

Acknowledging the solid economic fundamentals of the of the past 18 years, 40 quarters of economic growth and 16 quarters of 6% plus GDP growth, covering the Ramos, Arroyo, Aquino, and now Duterte governments, Diokno believes we are poised to go for higher economic growth even amidst an evolving/transitioning world and national economic environment. The headwinds of unbalanced global growth, capital shifts, populist sentiments fueling inward looking economic policies, US-China trade tensions and others, are surmountable with our robust economy with the objective of inclusive growth and bringing the policies closer to the people. The disruptive effects of tech innovations, weather disturbances, infrastructure gaps, and budget delays are the givens that the BSP has to contend in crafting stable, growth-oriented monetary policies.

Diokno opined that the three-pronged approach will be; build on BSP’s strength in prioritizing price and financial stability, maintain the independence of the BSP, and deploy market-based monetary instruments. As most of the world’s central banks have made inflation targeting as their primary objective and achievement, the first approach is incontestable. The second one would be more problematic if the growth targets of the government are derailed and BSP intervention is needed to pump up the economy by increasing liquidity/money supply at the behest of the fiscal managers that Diokno was previously part of as budget secretary.

The BSP will continue the current regulatory environment of the banks and financial institutions under its supervision under the expanded powers in the amended BSP Law, which allows additional access to private information and issuance of its own debt instruments. The regulatory sandbox approach and international best practices will prevail in the risk governance of banks. They are open to the entry and regulation of FINTECH in the financial system as it counters shadow banking and helps in serving the large unbanked sectors of society.

The reduction in the reserved requirements for banks and other financial institutions and the rate reduction of the BSP interest rate corridor may not happen until the third quarter as the declining inflation has first to settle at 2.5% to 3% before the BSP adds liquidity to the financial markets. The March inflation rate came in at 3.3% and with the May election, it would probably be in the third quarter that the reserve requirement reduction and the lowering of BSP’s interest rates will happen. The stock market and the real estate market will have to take a breather as the current interest rate levels have tempered their high sales volumes and prices of the previous years.

There will be no dramatic or major moves by Diokno as BSP governor as the BSP has been running on an even keel the past so many years, and its independence has not been assailed. Diokno has also been in the monetary board and is aware of the competence and professionalism of the BSP. The current economic team of the government knows what it is doing and has been left mostly to its own by the political side of the government, which is just as well.