MB roster a mix of ‘hawks and doves’ – ING

Dutch financial giant ING said the policy-making body of the Bangko Sentral ng Pilipinas (BSP) is divided when it comes to the country’s monetary stance with the completion of the seven-member roster.

Nicholas Mapa, senior economist at ING, assessed the likely leaning of the Monetary Board members of the central bank chaired by BSP Governor Eli Remolona Jr.

“With the BSP’s Monetary Board cast complete, perhaps we should try to carry out this exercise as we begin the year and predict the BSP’s next move and its timing,” Mapa said.

He pointed out that most analysts in the US regularly attempt to gauge the timing and direction of the next move of the US Federal Reserve by counting hawks and doves.

Mapa said the BSP chief is hawkish after signaling the need for a sufficiently tight policy stance until inflation decelerates sustainably within the central bank’s two to four percent target.

“We expect him to drive the discussion with his preference for higher for longer now that the BSP continues to operate utilizing the risk adjusted inflation forecast as opposed to their actual baseline forecast,” he said.

Another possible hawk, according to Mapa, is former finance undersecretary Romeo Bernardo, a former analyst for the Philippines at New York-based

GlobalSource Partners.

“Back in August 2023, Bernardo cited the risks to the inflation outlook, as well as elevated core inflation, which suggests his focus on inflation and the risks to the outlook. Thus, Monetary Board member Bernardo may be leaning hawkish, possibly supporting the higher for longer narrative of the governor,” he said.

According to Mapa, former finance secretary and BSP governor Benjamin Diokno, who was recently appointed the seventh member of the Monetary Board, is a known dove.

“Diokno’s most recent comments prior to his appointment as Monetary Board point to him being a dove. He did indicate that rate cuts will likely happen this year, with up to 100 bps worth of easing in the pipeline,” Mapa added.

Possible doves, Mapa said, include newly appointed Finance Secretary Ralph Recto and former national treasurer Rosalia de Leon.

“The Secretary of Finance is expected to lean dovish given his need to fund the republic while also managing the current fiscal debt and deficit levels. Although he may not call for rate cuts immediately, we could see him leaning dovish and rule out additional tightening,” Mapa said.

Given her longstanding career at the Bureau of Treasury, Mapa said De Leon’s fiscal background and the current level of national debt could suggest she leans dovish this year.

Hawks seek contractionary monetary policy by keeping interest rates high, while doves push expansionary monetary policy by keeping rates low.

On the other hand, Mapa said Monetary Board members Anita Linda Aquino and Bruce Tolentino are the wildcards.

“We are unsure as to where the remaining Monetary Board members Aquino and Tolentino align themselves,” he added.

According to Mapa, Aquino has yet to speak out on her views on policy, so this makes her a potential swing vote for the hawks or the doves.

For his part, Mapa said Tolentino recently underscored the role of supply side measures in fighting off price pressures, which could mean he leans dovish.

However, Mapa said it remains unclear if Tolentino would opt to support a more dovish leaning in 2024, making him another wild card.

Given the recent structural reforms carried out to help address supply side bottlenecks (potential rice supply deal and investment in agriculture), Mapa sees no impediment to consider potential accommodation to help address negative capital formation and slowing bank lending.

The economist said doves could possibly make a case for a rate cut shortly after the US Fed finally conducts its much-awaited pivot once the BSP reverts to using its baseline inflation forecast for its policy decision making.