BSP appointment ‘positive for markets’


Analysts said the appointment of Nestor Espenilla Jr. as Bangko Sentral ng Pilipinas (BSP) governor effective July is expected to be positive for the country’s financial market due to his expressed pledge of policy continuity at the central bank.

Espenilla as BSP deputy governor currently heads the central bank’s Supervision and Examination Sector, which oversees banks and other non-financial institutions.

As an insider, his appointment will be taken to mean a seamless transition of leadership, an economist at Australia’s ANZ Research said.

“Going forward, the BSP is likely to play a significant role in the development of regulation to clamp down on financial crime,” ANZ Research economist Eugenia Victorino said.

“While the regulatory framework in the Philippines is relatively one of the strictest in the region, institutional challenges remain. The relaxation of the Banking Secrecy Act, which was proposed in the first package of tax reforms, will aid effective enforcement,” she added.

In terms of monetary policy, ANZ expects to see continuity in decision-making with a firm focus on inflation.

Nomura said in a reaction, Espenilla’s appointment bodes well for a seamless transition and policy continuity, noting the incoming governor’s promise to continue to adhere strictly to the BSP’s inflation-targeting framework.

The choice of Espenilla also validates the official rhetoric earlier that President Duterte understands the importance of maintaining an independent and credible central bank, Nomura said.

“Third, apart from preserving Mr. Tetangco’s legacy, a key task for the next governor will be to address reform issues including, among others, amendments to the bank secrecy law, the anti-money laundering act and the BSP charter, as we have argued before,” it added.

Nomura believes that Espenilla’s track record as deputy governor in charge of bank supervision makes him the best qualified official to tackle these challenges.

“We think he will be able to work well with President Duterte’s technocratic economic team, led by Finance Secretary Dominguez and hence, is positive for the overall reform agenda of the administration,” it said.

Nomura also sees the selection of Espenilla as positive for markets and should address some concerns about outgoing Governor Tetangco’s replacement.

“That said, with upside risks to inflation and a change in interest rates unlikely until after the new governor has taken office (July 2), market concerns over the BSP being behind the curve on inflation are unlikely to abate in the near term,” it added.

Dutch financial firm ING Bank Manila said the appointment is a choice for continuity of monetary and financial system’s policies and direction.

“The appointment also demonstrates the President’s confidence with and trust in his economic team. The decision also displays the strong influence of his economic team, especially Finance Secretary,” ING Bank Manila senior economist Joey Cuyegkeng said.

He sees the BSP monetary policy under the future governor unlikely to change, and inflation-targeting remaining as the central bank’s approach while carrying on its risk-related policy bias.

“Soon-to-be BSP Governor Espenilla hardly talks about monetary policy publicly. He is BSP’s face on financial market regulation but he is still involved in shaping monetary policy, especially when regulatory tweaks are needed to influence monetary policy,” Cuyegkeng said.

Safeguarding the banking system while implementing best practices to make for a more efficient banking system and financial markets would receive a further boost, while pushing for seamless mobility of funds among banks and the banking system and bank clients, not only for basic banking services but also for the ease of fund transfers and investments, he said.

“Overall the decision is positive, not only for the monetary system but for the economy – [indicating]continuity and progress and displaying the President’s preference and disposition to economic expertise, [and that of]his economic team,” Cuyegkeng added.


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