Challenges mount in Philippine central bank chief’s 2nd year

Bloomberg

Philippine central bank Governor Nestor Espenilla faces mounting challenges as he begins his second year in office.
The 59-year-old central banker is set to miss his inflation target, the peso is wallowing near a 12-year low, and he is facing criticism he took too long to raise interest rates. He ends the first year of his six-year term in office with global worries too: higher oil prices, trade wars and tighter monetary policy.
“It’s been a difficult environment for the Bangko Sentral ng Pilipinas,” said Joey Cuyegkeng, economist at ING Groep NV in Manila. “It tried to respond to the challenges, but the challenges remain.” The central bank has raised its benchmark rate twice this year to 3.5 percent and left the door open for more tightening in June.
But the rate hikes came only after inflation hit a five-year high in March and followed a month after the central bank cut the reserve requirement ratio for lenders — a move that would boost liquidity into the financial system — confounding analysts from Continuum Economics and Natixis Asia Ltd.
The cut in the reserve ratio is part of Espenilla’s policy to gradually lower it to 10 percent by 2023, and a move he says shouldn’t be interpreted as a monetary policy adjustment.
‘MIXED SIGNALS’
Bangko Sentral “continues to send mixed signals by raising interest rates and cutting required reserves ratio,” said Charu Chanana, economist at Continuum Economics in Singapore. “It is the uncertain policy making that is the biggest headwind to the peso as of now, and their focus on domestic conditions looks inappropriate.”
The peso is vying with India’s rupee as Asia’s worst performing currency, with both down more than 6 percent against the dollar this year. The peso rose 0.1 percent on Tuesday, paring its decline this year to 6.5 percent. The benchmark Philippine Stock Exchange Index entered the bear market last month and has lost 16 percent this year.