Focus on actions not words, Philippine central bank governor says

The Philippine economy is on the right track under its new government, and investors jittery about President Rodrigo Duterte’s fierce rhetoric should focus on actions rather than words, Central Bank Governor Amando Tetangco said on Wednesday.

He said the central bank was ready to modify its monetary policy stance if necessary, but saw no urgency to do so because there is manageable inflation and strong growth, which should be sustained on the back of the government’s reform plans and policy continuity.

“What is important is for one to be able to discern between what is noise and what is fact,” he told Reuters in an interview when asked about concerns about Duterte’s mercurial style.

“The current administration has committed that it will continue or follow the reforms, the policies and the reforms that have been put in place by the previous administration so this really suggests there will be a continuity.

Tetangco added: “The decibel level may have risen but if you look at the facts, the economy is still doing very well.”

Duterte’s trademark outbursts have rattled investors, particularly those from the United States, a country Duterte has a major grudge against. He has told American firms unhappy with his anti-U.S. tirades to pack their bags, and wants U.S. troops out of the Philippines for good.

Infrastructure Gap

On interest rates, Tetangco said adjustments could be made if needed but there was sufficient space both on the monetary and fiscal side. The government, he said, could ramp up spending, particularly on infrastructure, for which the Philippines had “a lot to catch up on”.

The bank – the Bangko Sentral ng Pilipinas – has not tinkered with its monetary policy since it raised rates by 25 basis points in September 2014. It set the main rate at 3.0 percent when it moved to an interest rate corridor framework in June last year to make policy transmission faster and more efficient.

Some economists believe the central bank will have to raise rates this year as inflation edges higher. Nomura expects a cumulative 50 basis points of hikes in the first half of 2017.

Tetangco said the Philippines would “not go against the fundamental trend” of its peso currency and the bank had tools to handle financial market volatility that could stem from U.S. rates hikes, domestic politics and protectionist policies that could come under a new U.S. administration.

“What is needed is to manage this volatility before it gets too problematic,” he added.

In rare comments about the president, Tetangco said Duterte’s dramatic foreign policy upheaval had been misunderstood. Duterte’s intent, he said, was to support the economy by diversifying trade and investment partners, rather than shut the door on longtime ally the United States, with which ties would only expand.

“What they call (a) pivot to China does not necessarily mean we are pivoting away from the U.S.,” he said, adding it was “not a zero-sum game.”

Tetangco, a veteran technocrat widely praised for his stewardship of one of the world’s fastest growing economies, refused to be drawn on whether he was considering Duterte’s offer to extend his tenure for a third, six-year term.

He said central bank governors were limited to two terms only under the law. His second term ends in July.

“That’s a hypothetical question,” he said.

The “best candidate” to succeed him, he said, “should be someone with central banking background.”