FOR the last 27 years, it has been the tradition of all Bangko Sentral ng Pilipinas (BSP) governors (since Governor Gabriel Singson) to speak before the 1st General Assembly of the Rotary Club of Manila. This usually happens on the very first week of the year.
And on the third week, the BSP governor speaks before representatives of the banking and financial community. The latter speech is usually followed by a New Year's toast, led by the governor (who is also the chair of the Monetary Board) and all the members of the Monetary Board. The Rotary speech has gone on as scheduled. The speech before the banking sector was scheduled last Friday evening.
Before the Rotary Club of Manila, BSP Governor Benjamin Diokno reviewed the economy in 2019, reported on BSP's delivery of its core mandates, elucidated on BSP's thrust in bringing the benefits of monetary and financial stability closer to the people. Finally, Diokno gave his audience a glimpse of BSP's mindset in the new decade.
Excerpts from the governor's report:
* Amid global and domestic challenges, the Philippine economy, as it stands today, remains in a position of strength as evident in several metrics. Real GDP growth remains resilient, driven by strong domestic demand. The year-to-date GDP growth rate of 5.8 percent for the first nine months of the year underscores the Philippines' place as one of the most resilient and fastest growing economies in Asia and in the world.
* In addition, our growth continues to be inclusive, with poverty incidence among the population declining to 16.6 percent in 2018 from 23.3 percent in 2015, or a 2.2 percent decrease in poverty incidence annually.
* Effective monetary policy contributed significantly to achieving within-target inflation. From a high of 6.7 percent in September and October 2018, average inflation for 2019 settled at 2.5 percent, well within the Government's target range of 3.0 percent ± 1.0 percentage point for the year. Looking ahead, the latest baseline forecasts indicate that inflation is projected to average 2.9 percent for both 2020 and 2021.
* Modest fiscal deficit supports effective government spending and sustainability to meet debt obligations. Nonetheless, fiscal spending is being undertaken prudently. The NG has put a cap on its fiscal deficit to GDP ratio at 3.2 percent for 2019 and 2020, mitigating any pressure on the current account coming from the infrastructure program.
* Ample liquidity continues to support economic activity, while a stable and healthy banking system, aided by strong prudential supervision and regulation, leads to efficient intermediation and management of risks.
* A strong external position, backed by comfortable FX reserves and prudent external debt management, helped build buffers against external headwinds.
* The peso has been broadly stable, while the end 2019 level of the Gross International Reserves at $87 billion provides an ample external liquidity buffer.
* Even amid external headwinds, the country's external payments position recently made a turnaround from a negative position in 2018, to a surplus of US$6.27 billion for the period January - November 2019.
* Last year, the Monetary Board (MB) cut the BSP's policy interest rate by a total of 75 bps and the reserve requirement ratio by a total of 400 bps. The MB believes that prevailing monetary policy settings remain appropriate, supported by the benign inflation outlook and a strong positive outlook for domestic economic growth.
* In terms of the policy rate outlook for 2020, the BSP will always be data dependent with its decisions. That is, each policy decision will be based on all the available information to monetary authorities at the time of its decision. For this reason, the BSP will continue to closely monitor economic conditions and on making reasonable assumptions about the future when formulating its monetary policy.
* Let us not forget (however) that an appropriate mix of monetary, fiscal, and other structural policies is crucial in achieving the government's macroeconomic objectives.
* The sustained favorable external debt profile is also another factor supporting the external sector position. A large part of the country's external debt remains in the form of medium-to-long term borrowings, which implies a manageable debt repayment schedule over the medium-to-long term horizon.
* The passage of Republic Act 11211, known as the "New Central Bank Act" (signed on 14 February 2019) is a significant milestone in 2019 for the BSP. The pursuit of the BSP mandates were further strengthened with the expansion of the BSP's policy toolkit.
* The BSP is actively exploring RegTech and SupTech solutions to enhance the timeliness and quality of our risk-based decision making. The BSP has incorporated climate and disaster-related data in monetary policy analysis forecasting, monitoring, and risk assessment.
* BSP remains firmly committed in fulfilling its price and financial stability mandates, while advocating for inclusive growth. The BSP will actively pursue its advocacy of bringing the institution closer to the people through financial inclusion and financial literacy.
It is an interesting read (or 'hear' if you will) considering the very important role played by the Bangko Sentral which affects the lives of every Juan and Maria.
For those interested, a full text of this and other policy speeches are downloadable from the BSP's website: http://www.bsp.gov.ph/publications/speeches.asp.
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January 27, 2020
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