Friday, July 19, 2019

Law strengthens BSP’s capacity to foster price and financial stability

PRESIDENT Rodrigo Duterte signed into law Republic Act 11211, or An Act Amending Republic Act (RA) 7653, otherwise known as the New Central Bank Act.

According to Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr., “The BSP appreciates the support of the Office of the President, the Senate and the House of Representatives in passing the law that bolsters the BSP’s capability to promote the stability of prices and the financial system. The amendments to the BSP Charter are both timely and attuned to a fast-evolving market landscape.”

“We also recognize the efforts of central bankers who began spade work on this legislative initiative some 20 years ago. Under our new Charter, we will continue to build on the central bank’s rich institutional experience under BSP’s Continuity Plus-Plus program,” Espenilla added.

The new BSP Charter embodies a package of reforms that will further align its operations with global best practices, improve the BSP’s corporate viability, and enhance its capacity for crafting proactive policies amid rising interlinks in the financial markets and the broader economy.

In line with current international trends, the law removes money supply and credit levels as basis for determining monetary policy. The focus on these indicators has declined among central banks over the years, as fostering price stability now considers a broader set of indicators.

RA 11211 also restores the central bank’s authority to issue debt papers as part of its regular operation. This gives the BSP greater flexibility in determining the timing and size of its monetary operations.

Under the inflation targeting framework, the BSP focuses mainly on achieving price stability, instead of targeting monetary aggregates, as the ultimate objective of monetary policy.

The law likewise widens the coverage of institutions under BSP supervision to include money service businesses, credit granting businesses and payment system operators. This puts the BSP in a strategic position to address potential risks arising from the linkages of banks and these financial entities.

The law also authorizes the increase in BSP’s capitalization from P50 billion to P200 billion, which shall be sourced from dividends declared by the BSP in favor of the national government.

Under the new BSP Charter, BSP is also exempt from taxes on income derived from its governmental functions. These reforms place the BSP in a stronger position to pursue its price and financial stability mandate amidst a growing economy and the increasing sophistication of the financial system. (PR)


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