Diokno: BSP must ensure 'steady, strong' growth as inflation returns to target

Joel Guinto, ABS-CBN News

Posted at Mar 05 2019 07:46 AM | Updated as of Mar 05 2019 03:39 PM

Budget Secretary Benjamin Diokno. Mark Demayo, ABS-CBN News/File

MANILA -- Newly-appointed Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the central bank must ensure "strong, steady" economic growth as inflation returned to the government's target range.

Inflation cooled further to 3.8 percent in February, settling within the BSP's 2 to 4 percent goal. This will lessen pressure on the BSP to tighten policy during its next meeting on March 21, according to analysts.

"Price stability is one goal of BSP. Financial stability is the other one. But it's more than that," Diokno said in a text message reply to ABS-CBN News.

"BSP’s role is to ensure steady, strong growth. In order to achieve this, monetary policy has to be in sync with fiscal policy," he said.

Gross domestic product grew 6.2 percent in 2018, the slowest clip in 3 years as economic managers grappled with inflation at near 10-year highs.

Diokno's statement pointed to a "pro-growth bias" and he could cut the reserve ratio requirement for banks within the year, said HSBC economist Noelan Arbis.

"It seems Sec Diokno is going to be focusing a little more on growth," Arbis said, adding policy continuity in the BSP is "very important" for markets.

In 2018, the Bangko Sentral ng Pilipinas raised the benchmark borrowing rate by 175 basis points in 5 successive policy meetings to tame price spikes.

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POLICY SPACE

Diokno assumed office as BSP governor on Tuesday after he served as budget secretary to President Rodrigo Duterte since the chief executive assumed office in 2016.

As part of Duterte's economic team, Diokno helped craft measures to ease inflation from near 10-year highs in 2018. Diokno was also budget secretary to former President Joseph Estrada and served the same department under former president Corazon Aquino.

Diokno replaced the late BSP Gov. Nestor Espenilla Jr, who died in February after a one-year-long bout with tongue cancer.

Inflation has been cooling due to easing oil prices and as the impact of higher and new taxes slapped by the government on certain commodities fades. The rate is expected to moderate further and probably hit below 4 percent this month, the central bank has said.

Given the improving outlook on inflation, it is possible that the central bank would start unwinding some of last year's tightening, which should also bode well for economic growth, some analysts said.

Full-year inflation projections by 7 economists out of the 12 in the poll produced a median estimate of 3.3 percent, well inside the central bank's comfort range, and much slower than last year's 5.2 percent average.

WELCOME APPOINTMENT

With a "bird's eye view of the economy," Diokno will be able to "fine tune what's needed to support growth shifting from the current 6 percent to a higher gear," said BDO Unibank chief market strategist Jonathan Ravelas.

"The challenge he faces is assuring investors that the central bank will stay independent and faithful to its critical role; that it is the glue holding the economy together," said Ravelas, who described Diokno as a "good communicator and advocate of transparency."

Several business groups also welcomed Diokno's appointment as central bank governor. The Bankers Association of the Philippines described him as a "respected economist, academic, and civil servant."

"The BAP is optimistic that the reformist brand of leadership of the new BSP Governor will pave the way in continuing the necessary reforms and policies to strengthen the Philippine banking industry," it said.

The Financial Technology Alliance said it hoped Diokno would support digital solutions like his predecessor, who advocated new technology to make formal financial channels more accessible.

"The swift appointment of BSP Governor Ben Diokno is a welcome move. We look forward to continuity of reforms in the industry such as harnessing digital transformation towards creating an inclusive economy," the group said.