By Bernadette D. Nicolas & Bianca Cuaresma, March 7 2019; Business Mirror

Image Credit to Business Mirror

Newly appointed Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno said he is considering to “expedite” the cut in the reserve requirement ratio (RRR) following the continued deceleration in the country’s inflation in the early months of 2019, but acknowledged that “timing” is important.

Diokno said this on Wednesday ahead of his meeting with the Monetary Board on Thursday.

Aside from cutting the RRR, Diokno said he may also instruct the technical staff to review the interest rates, and the banks’ compliance with the agri-agra law.

“Maybe we can expedite the reduction of the reserve requirement [ratio]; that’s needed. It’s the policy of [the late Governor] Nesting [Espenilla]. That is really high, because basically it’s a tax on banks,” Diokno said.  However, Diokno quickly clarified that the matter of hastening the cut in RRR is still subject to review.

Nonetheless, Diokno said he agreed with BSP Deputy Governor Diwa Guinigundo’s earlier statement that it is still “premature” to talk about a possible reduction in RRR with the year-to-date inflation still averaging above target.

Diokno echoed Guinigundo’s assertion that proper timing should be considered in cutting the RRR. “We will look at the timing.

Timing is important. We saw that the deceleration of inflation looks good, so maybe we will need two [percentage] points reduction in March and April,” he said.

The RRR is one of the Central Bank’s liquidity tools to control monetary conditions in the country. It is the portion of depositors’ balances that banks are asked to keep idle in the BSP’s vaults as reserves.

Reserve requirements usually affect the earnings potential of the account since these reserves cannot be used for investment and are only parked in the Central Bank.

From 20 percent, the BSP reduced the RRR twice last year to 18 percent, infusing additional liquidity to the banking system.

Inflation has slowed to 3.8 percent in February, the same rate it registered for the same month in 2018.

The February inflation figure fell within the government’s target of 2 to 4 percent for 2019.

In 2018, the BSP made aggressive back-to-back hikes to the monetary-policy rate to the tune of 175 basis points in the May-to-November period to address the accelerating trend of inflation then.

Under the agri-agra law, the government and private banks should allocate 25 percent of their total loanable funds to the agri-fisheries sector, with 10 percent being distributed to agrarian-reform beneficiaries (ARBs) and the remaining 15 percent to the farm sector.

However, banks have for years failed to comply with this law, and this has caused banks to pay about P6 billion in penalties over the last two years.

BSP top brass backs Diokno

Also on Wednesday, the BSP expressed full support to its new chief, saying preparations are under way for Diokno’s assumption into office on Thursday.

BSP Officer In Charge Cyd Tuano-Amador said in a statement the BSP community “welcomes and fully supports” the appointment by President Duterte of Diokno as BSP governor and chairman of the Monetary Board.

Diokno replaced Nestor Espenilla Jr., who died in February due to tongue cancer. Espenilla only served the BSP for 19 months, succeeding Amando Tetangco Jr. who served two terms as BSP chief. Both Espenilla and Tetangco were BSP “insiders” as they rose through the ranks of the Central Bank after decades with the BSP.

Amador said Diokno—who was budget secretary prior to his appointment as BSP governor—brings with him “a special brand of leadership honed from decades of exposure to different facets of government operations to improve the lives of Filipinos, in cooperation  with the private sector, academe and various organizations.”

“The BSP community looks forward to his assumption into office tomorrow, Thursday, and to working closely with him to ensure the smooth functioning of the Central Bank to effectively discharge its mandate to promote price and financial stability, to ensure a safe, reliable and efficient payments system, as well as to help sustain economic growth that is inclusive and participatory,” Amador said.

In a separate speaking engagement, Deputy Governor Chuchi Fonacier welcomed Diokno’s appointment to the BSP’s top post, saying the entire institution is behind him all the way.

“Rest assured that the BSP will continue to deliver on its mandate of price and financial stability and efficient payments system. We welcome him and we are already preparing for Secretary Diokno’s reporting to the BSP,” Fonacier said.

Diokno: I’m qualified

Diokno lashed out at his detractors on Wednesday, saying he “doesn’t buy the concept that governorship is the prerogative of those from inside” BSP.

“I won’t question his [President’s] decision. No one has the birthright to say that the governor should come from this group or that group. In fact, what is bad is when you appoint a banker. I am very consistent with that statement. Anybody but a banker,” he said.

Diokno said it is also the practice of other countries to appoint the lead of the Central Bank from academe.  Diokno has since explained that the role of BSP is much broader than being a bank regulator as it is also its role to maintain price and foreign-exchange stability consistent with the country’s growth objectives.

Aside from a doctorate in macroeconomics, Diokno said he has experience with the banking sector. He served as independent director of Asia United Bank and chaired the risk committee of that bank.