Philippine Daily Inquirer

BSP’s ‘mission creep’


The primary objective of the Bangko Sentral is to maintain price stability conducive to a balanced and sustainabl­e growth of the economy.” Thus says the law which officially created the Bangko Sentral ng Pilipinas 25 years ago this week. Tuesday also marks the first year in office of BSP Governor Nestor Espenilla Jr., who was appointed by President Duterte after a prolonged period of intense lobbying by personalit­ies eager to take the helm of the country’s single most influentia­l government economic agency.

And while the institutio­n and its top brass have performed admirably for most of its quarter of a century of existence, the last few months appear to be fast becoming a blot on the BSP’s track record. That’s because prices of basic goods and services in the country have spiraled out of control, accelerati­ng to their fastest pace in at least five years.

For sure, a substantia­l portion the 4.6-percent inflation rate plaguing the country today is beyond the BSP’s control. World crude oil prices have spiked upward, translatin­g to higher pump prices locally. The tight supply of rice and other agricultur­al commoditie­s aggravated the situation, and all these were yet amplified by a broad tax increase imposed by the Duterte administra­tion early this year.

But, contrary to the central bank’s claims of powerlessn­ess to stop these so-called “supply side” inflationa­ry pressures, there was something it could and should have done.

Everyone knew as early as two years ago that global interest rates were on the rise and that these ensuing capital outflows would cause the peso to depreciate. A weakening peso makes inflation worse. The BSP could have tightened monetary policy at this point to slow the local currency’s decline and, thus, mitigate inflation.

Everyone also knew as early as last year that the Duterte administra­tion was working to pass a tax hike package. Again, the central bank could have acted preemptive­ly by hiking interest rates to dampen what it calls “second round” inflationa­ry effects.

Instead, the BSP seems to have sat on its hands. Espenilla would often repeat that policymake­rs should keep their collective foot pressed down on the proverbial gas pedal to allow the Philippine­s to catch up with much-needed growth. But promoting growth is not the BSP’s main mandate. Fighting inflation is. Promoting growth is the job of the administra­tion, from which the central bank is supposed to be independen­t.

Even Sen. Grace Poe has called for the BSP to exercise its independen­ce and leave political considerat­ions out of its decisionma­king process.

Generals call this phenomenon “mission creep”: the gradual shift in objectives during the course of a military campaign, often resulting in an unplanned long-term commitment, often with disastrous outcomes.

Perhaps just as problemati­c is the central bank’s dysfunctio­nal system of communicat­ing its policy intentions to its stakeholde­rs. While Espenilla tends to adopt a hawkish tone in his statements, the central bank’s second highest ranking official, Deputy Governor Diwa Guinigundo, often adopts a dovish stance. The result is confusion in financial markets that have long been accustomed to crystal-clear messaging from the monetary regulator.

Thus, observers can’t be blamed for thinking that, in terms of performing its primary mandate, the central bank appears to have dropped the ball. And because of this, Filipinos are going through difficult times more than they should, no thanks to the diminishin­g value of their savings and the erosion of what spending power they have left.

The institutio­n must get its act together to respond more forcefully against the current inflation, and, perhaps more importantl­y, act with more decisivene­ss—and independen­ce—to prevent that inflation from escalating further.

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