• A mandate beyond sound monetary policy



    An exclusive Manila Times roundtable interview with Central bank Governor AmandoTetangco Jr.

    Amando Tetangco Jr. as the two-term central bank governor of the Philippines is one of the few people in government who will be seeing through the transition of the Administration from the Benigno Aquino 3rd regime to whoever wins the 2016 general elections.

    Unlike other officials from the Aquino cabinet, Tetangco’s position is not co-terminus with the President. He will be finishing his six-year term – his second – in 2017.

    Tetangco is clear about his mandate throughout the transition period for Aquino’s successor:

    “From the side of the BSP … there will be continuity. We will have to keep our focus on the mandate of price stability conducive to balanced and sustainable growth for the economy, a sound and stable banking system, plus an efficient, reliable payments system,” he told journalists of The Manila Times in a roundtable interview earlier this week.

    But having been living and breathing that mandate long before he was first appointed BSP governor by former President Gloria Arroyo in 2005, then as reappointed by Aquino in 2011, Tetangco’s confidence in what he does has grown beyond his purview of monetary policy as a tool for financial stability conducive to economic growth.

    His language goes beyond that of a financial technocrat who leaves an air of mystery and anxiety over his audience at his mention of M3, GIR, BOP, special deposit account, RRR, quantitative easing, global headwinds, and the latest, interest rate corridor system, as well as SPRB (Strengthening Program for Rural Banks).

    Now he also loves to talk about sustainable, inclusive growth and reaching out to the “unbanked” and “underserved” segments of the country’s population, mainly through the small-scale businesses situated in the remote areas.

    In a free wheeling roundtable interview with reporters and editors of The Manila Times, the 62-year old central bank veteran talks about his agenda of continued stability in the country’s financial system for the incoming government next year and through the rest of his term in 2017.

    Capital market development
    First thing that comes to his mind when asked about his recommendation for the next government, besides price stability and reliable banking system, is the serious development of the country’s capital markets.

    “We really need to develop the capital market – there’s no question about that. We have a long way to go as far as the domestic capital market is concerned. That is what the next Administration should do,” he says.

    “There is a capital market development blueprint that has been put together by the Securities and Exchange Commission with the assistance of different agencies. I think if we try to implement it, that’s going to help a lot,” he adds.

    (Note: this will be a subject of another Manila Times special report)

    Price stability
    Tetangco describes the economy as “having done relatively well” over the past few years despite the attending uncertainty over the extent of China’s economic slowdown and the brewing financial crisis in the European Union.

    Building on momentum from the previous government’s achievement of economic growth, the Philippines under Aquino gained a further 3.7 percent expansion in gross domestic product (GDP) in 2011, 6.8 percent in 2012, peaking at 7.2 percent in 2013, before easing to 6.1 percent in 2014.

    This year, GDP grew 5.6 percent in the second quarter, the third highest in the region after China and Vietnam. The first-half average is 5.3 percent.

    “More importantly, this is happening at time when inflation remains low.”

    Inflation in the first nine months averaged 1.6 percent – below the government’s inflation target range.

    For the second half, an acceleration in government spending is expected, which the government says should provide further growth momentum.

    “Of course, we’ve got the traditional sources of growth like consumption. Consumption has always been an important driver of growth in the Philippines,” Tetangco says.

    The government’s economic and finance managers have admitted that achieving the target 7 percent to 8 percent growth for this year and 2016 now looks unlikely. Tetangco says the new assumption of 6 percent to 6.5 percent this year would be a respectable expansion for the economy.

    ‘Sustainable, inclusive growth’ has become this government’s economic mantra, and for the BSP’s part, he says the way to achieve it is to anchor its policy on three major pillars: price stability, stable banking system and reliable payments system.

    Striking a balance between the needs of the economy and price developments still stands at the core of the BSP’s monetary policy.

    “Right now, we have policy space and I think we are in a comfortable position, but any further policy action will be data-dependent,” Tetangco says.

    The BSP has kept its key policy rate steady since October last year. But more measures will be put in place for better monitoring of the global headwinds that remain as risk to the country’s growth traction, he says.

    The central bank is set to introduce a new monetary policy instrument called the interest rate corridor system (IRC) in the second quarter of 2016.

    “This is intended to strengthen the signaling effect of the monetary policy decisions and to make monetary policy more effective. In other words, the policy rate will be a more effective tool of the monetary policy,” he says.

    The IRC framework involves the establishment of the required infrastructure to effectively implement the monetary policy stance. Infrastructure requirements include two standing liquidity facilities – deposit and lending – whose rates will form a corridor around the BSP’s policy rate and will be supported by auction-based monetary operations.

    Stable banks
    “Third party assessments showed that the banking system is in a good position. We are stable in terms of metrics, capital system, liquidity, profitability, asset quality and all the various banking reforms that we have instituted last year, including corporate governance, adherence to international accounting standards, which means greater disclosure by the banks – all of these have helped to strengthen the banking system,” Tetangco says.

    One of the BSP initiatives for the banking system is to strengthen, not only the large banks, but also the small rural banks.

    The Strengthening Program for Rural Banks (SPRB) Plus, which will run until December this year, is an enhanced version of the original SPRB launched in 2010. The program encourages mergers, consolidations and acquisition of eligible rural banks and thrift banks by strategic third party investors.

    Reliable payments system
    Tetangco emphasizes the need for the country to have a secure and reliable payments system that will eventually promote financial inclusion – which comprises the third pillar of the BSP policy.

    A BSP initiative toward this end is the creation of the National Retail Payments System (NRPS), which gives Filipinos easier access to financial services, such as making payments through their banks and receiving or transferring funds to other accounts at any time or place, for a reasonable price from any digital device.

    The BSP has drawn support from other financial institutions involved in the NRPS creation to set up a project management offce that will oversee the system.

    “We want to set up an NRPS where there are third party account-to-account payments that can be made through digital devices,” Tetangco says.

    The central bank is now drafting the governance framework but would prefer that the system is self-governed by the players and not by the government. This would allow players to introduce innovations that would further promote financial inclusion in the country.


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