Financial industry awaits Diokno’s first signals

THE COUNTRY’S financial sector awaits clear cues from newly appointed Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno, with expectations that his outsider view will make monetary policy more supportive of the state’s growth goals by way of lower interest rates.

Malacañang made the surprise announcement on Monday night, naming the two-time Budget secretary as head of the central bank and chairman of the policysetting Monetary Board.

Mr. Diokno, 70, has been sitting as part of President Rodrigo R. Duterte’s economic team since assuming office mid-2016. He holds a doctorate degree in economics and has been professor emeritus at the University of the Philippines Diliman. His career was spent mostly in the academe and in government, having served as budget undersecretary under former Pres. Corazon C. Aquino and later on, as budget chief of former Pres. Joseph E. Estrada.

Observers generally took the news as a surprise, given that Mr. Diokno wasn’t among the names floated to replace the late Gov. Nestor A. Espenilla, Jr. who passed away on Feb. 23 after battling tongue cancer for over a year.

Mr. Diokno will serve Mr. Espenilla’s remaining term until July 2023. He is yet to take his oath as BSP governor as of press time, although Executive Secretary Salvador S. Medialdea said that the appointment took effect yesterday.

‘EVIDENCE-BASED’

Pressed for comments about his term at the BSP, Mr. Diokno said it was “too early to make any policy statement” for now.

“Policy statements will be evidence-based and it should be the outcome of deliberations by the seven-man Monetary Board,” Mr. Diokno said in a mobile phone message.

In a statement, the Bankers Association of the Philippines said it was “optimistic” about Mr. Diokno’s leadership given his “reformist” image.

Alfonso L. Salcedo, Jr., president and chief executive officer at Security Bank Corp., said Mr. Diokno’s appointment was “not expected,” but that the new BSP chief is “competent and smart.”

Prior to this, there were calls to appoint a career central bank official to succeed Mr. Espenilla to follow tradition at the BSP.

The last “outsider” who took the governor’s seat was Rafael Carlos B. Buenaventura in 1999, who was then the president of a private bank.

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc., said markets seek assurance about policy continuity at the central bank.

“The last Governor Espenilla talked about ‘Continuity++,’ and the markets took it well. It would be good to be in line with this particular focus at the start,” Mr. Asuncion said.

“If the markets sense that it seems that ‘Continuity++’ will stay and in fact be upgraded further, I think, we will be fine moving forward.”

Several economists took Mr. Diokno’s appointment as a sign of more “pro-growth” measures from the central bank, given his vast experience on the fiscal front.

“Since being appointed, Gov. Diokno has already noted that the BSP’s monetary policies must be ‘in sync’ with fiscal policy, in addition to its considerations for inflation and financial stability. Given the Duterte administration’s expansionary fiscal policy stance, this signals a bias for more monetary accommodation from the new governor,” said Noelan Arbis, economist at HSBC Global Research.

BDO Unibank, Inc. chief market strategist Jonathan L. Ravelas added that the Mr. Diokno’s solid grasp of the economy will allow him to “fine-tune” policies to push growth beyond six percent, adding that he is a “good communicator and advocate of transparency.”

“After all, he is the chief architect of Build, Build, Build… He has to play the balancing act,” Mr. Ravelas said when sought for comment.

Mr. Diokno led the shift to a cash-based budgeting scheme designed to speed up public spending and delivery of projects and services. State disbursements also beat the P3.37-trillion program for 2018, leading to a wider budget gap equivalent to 3.2% of gross domestic product.

At the BSP, Mr. Diokno will inherit benchmark interest rates at a decade-high 4.25-5.25%, as inflation cools from a nine-yea peak of 6.7% in September and October 2018.

He also faces clamor from thew banking industry for further cuts in the reserve requirement ratio, a move that will unleash billions of pesos to the system and bring down the cost of money.

“With the price goal seemingly in hand, it may be time for the BSP to consider possibly reducing the reserve requirement ratio in the near term and eventually lower policy rates to help chase the 7-8% growth target,” said Nicholas Antonio T. Mapa, senior economist at ING Bank NV Manila. — with