TWO LANDMARK measures signed into law by Philippine President Rodrigo Duterte this month — one expanding the mandate of the Bangko Sentral ng Pilipinas (BSP) and another liberalising the rice trade — are expected to enhance the country’s financial and macroeconomic stability, according to debt watcher Moody’s Investors Service.
This assessment is contained in a Moody’s report titled “Government of the Philippines: Reform package promotes greater macroeconomic stability, a credit positive”.
According to the report, The New Central Bank Act (Republic Act No 11211) and the Rice Tariffication Law (RA 11203) are “credit positive” measures — meaning, they have positive implications to the country’s already investment-grade credit ratings.
“The amendment to the BSP’s charter expands its supervisory oversight over non-bank financial institutions such as money service businesses, credit granting businesses and payment system operators, which will enhance financial stability given the linkages between the banking system and these entities,” the report noted.
“In addition, the revised charter allows the central bank to issue its own debt securities, providing another tool to fine tune liquidity management and improve the effectiveness of monetary policy,” it added.
“Other notable changes include the official removal of money supply and credit levels as a basis to determine monetary policy; the prohibition of any injunction or restraining order on the BSP, except by the Philippines’ two highest courts; an increase in BSP’s capitalisation to 200 billion pesos (Bt120 billion ) from 50 billion pesos; and the exemption of the bulk of its activities from taxation.”
Moody’s said that, as the Philippines posted among the fastest gross domestic product (GDP) expansions in Asia during the last 10 years, domestic liquidity declined partly due to strong credit growth.
Partly to blame for the increase in interest rates in 2018, Moody’s said, was the drop in excess liquidity to 120 billion pesos— equivalent to 0.7 per cent of the 2018 GDP, as of November 2018 — from 1 trillion pesos in mid-2016, or 7.6 per cent of the GDP. Amid elevated headline inflation or the rate of increase in prices of basic commodities, the BSP’s Monetary Board hiked key interest rates by a total of 175 basis points last year.
As for the Rice Tariffication Law, which removed the import quota on the Filipino staple food, Moody’s said: “The expected increase in the volume of rice imports will diminish the price volatility of rice, helping to insulate Filipino households’ consumption to adverse agricultural shocks.”
Taking effect on March 5, this law will slap the following tariff rates on rice imports: 35 per cent if rice was imported from within the Asean region, 40 per cent if within the minimum access volume (MAV) of 350,000 metric tonnes for imports coming from countries outside Asean 180 per cent if above the MAV and from a non-Asean country
“The rice tariffication scheme will help alleviate local supply-demand imbalances by eliminating quantitative restrictions on rice imports, which will now be subject to tariffs,” Moody’s noted.