BSP Governor Nestor Espenilla gets no respite on rate-hike push

BSP Governor Nestor A. Espenilla Jr.

Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr’s admission that he’s recovering from cancer hasn’t stopped investors from pushing for more action on monetary policy.

Espenilla said he was diagnosed with “very early stage” tongue cancer last November, but has since had the tumor removed and successful radiation treatment, in written remarks to reporters last Sunday. The governor also said the Central Bank can adjust monetary policy without lifting interest rates, while stressing the decision to cut banks’ reserve requirement ratio wasn’t an easing of policy and won’t fuel price pressures.

“If he’s really cancer-free now, then it won’t cause jitters in the market anymore,” said Michael Gerard Enriquez, chief investment officer at Sun Life of Canada Philippines Inc. in Manila. “What is more alarming is the direction of the policy rates. Given a higher inflation rate, I believe we will be behind the curve if they don’t raise rates next month.”

Espenilla said last Sunday that the Central Bank can adjust the policy stance “more subtly without necessarily changing” the benchmark rate. This can be done “by allowing term-deposit facility rates to rise—or fall—by altering auction volumes,” he added, referring to the weekly tenders where the Central Bank accepts short-term deposits.

The governor only last week said a rate hike remains on the table if the inflation target is threatened, with most economists forecasting an increase on March 22, when the Central Bank holds its next policy meeting.

Espenilla has taken a cautious approach to monetary policy tightening, keeping the benchmark interest rate unchanged at 3 percent earlier this month even as he forecast inflation will exceed the 4-percent upper limit of the inflation target this year.

While there could be some “short-term anxiety” on the governor’s health, his transparency should address some of the speculation in the market about his condition, said Deanno Basas, president and managing director of Atram Trust Corp. in Manila.

“It’s true that the BSP has many more tools in its chest now. However, a rate move is still the clearest signal to the market,” Basas said. “In my personal view, a rate hike—even a token one—will help assuage fears of BSP being behind the curve and help anchor inflation expectations. This also will help in their control of the volatility in the currency.”

Espenilla also said last Sunday the Central Bank is selling dollars from its reserves to ward off currency speculators. The Philippine peso is the second-worst performing currency among emerging markets so far this year, next to Argentina’s, and this month traded at the lowest since July 2006.

“Though the FX reserves are still more than enough, interest-rate policy is also a useful tool, especially if it’s consistent with inflation management,” Basas said.

The local currency rose 0.2 percent in early trading on Monday.

Image credits: Carlo Gabuco/Bloomberg


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