Newly signed laws ‘credit positive’ for PH
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Mon, 25 Feb 2019 16:25:17 +0000
Rice tariffication and amendments to the Bangko Sentral ng Pilipinas (BSP) charter will further underscore the Philippines’ investment grade rating, Moody’s Investors Service indicated on Monday.
“These measures will enhance macroeconomic and financial stability, a credit positive for the sovereign,” the debt watcher said in a report.
President Rodrigo Duterte earlier this month signed into law Republic Act (RA) 112013, which lifted import limits on rice, and RA 11211, which amended RA 7653 or the New Central Bank Act of 1993.
Under rice tariffication, quantitative restrictions that had limited imports will be replaced with tariffs, starting with a 35-percent duty on rice bought from Association of Southeast Asian Nations (Asean) members regardless of quantity.
A higher 40-percent tariff, meanwhile, will be slapped on rice imports within the minimum access volume (MAV) of 350,000 metric tons (MT), going up to 180 percent for out-quota shipments sourced from non-Asean members.
“We expect 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,” Moody’s said.
It noted that last year, weather-related supply disruptions had led to a decline in rice production and price hikes for the staple.
“Because rice accounts for nearly 10 percent of the entire consumer price index basket, higher rice prices contributed to the acceleration in overall inflation,” the debt watcher said.
Inflation averaged 5.1 percent in 2018, exceeding the government’s 2.0-4.0 percent target.
Citing BSP estimates, Moody’s said that rice tariffication was expected to reduce inflation by 0.6 percentage points this year and by 0.3-0.4 percentage points in 2020.
The central bank expects inflation to average 3.06 percent in 2019 and ease further to 2.98 percent in 2020.
With regard to the BSP charter changes, meanwhile, Moody’s said expanded supervisory oversight over non-bank financial institutions “will enhance financial stability given the linkages between the banking system and these entities.”
A provision that allows the central bank to issue its own debt securities also gives regulators another tool to fine-tune liquidity management and improve the effectiveness of monetary policy, the debt watcher continued.
Moody’s said that as one of the fastest-growing Asia-Pacific economies over the past decade, the Philippines has seen credit growth contribute to a decline in liquidity and a subsequent rise in interest rates.
It noted that excess liquidity, as reflected in the BSP’s overnight deposit and term deposit facilities, fell to P120 billion or 0.7 percent of 2018 gross domestic product (GDP) as of November from as high as P1 trillion or 7.6 percent of GDP in mid-2016.
“The issuance of its own debt will enhance the BSP’s ability to better calibrate liquidity conditions through open market operations, allowing it to rely less on its deposit facilities and reserve requirements, which at 18 percent is one of the highest globally,” Moody’s said.
It also noted that an additional P200 billion was released into the financial system when the monetary authority implemented one percentage-point cuts to bank reserve ratios in February and May last year.
“The BSP’s intention to gradually reduce the reserve requirement will further ease liquidity constraints notwithstanding policy rate tightening since May 2018,” the credit ratings agency said.
Other notable changes in the central bank charter, Moody’s noted, include the removal of money supply and credit levels as a basis for monetary policy; the prohibition of any injunction or restraining order on the regulator, except by the Philippines’ two highest courts; an increase in the BSP’s capitalization to P200 billion from P50 billion; and the exemption of the bulk of central bank activities from taxation.
“Together, these measures will help supplement the BSP’s strong record of maintaining monetary and financial stability and help improve liquidity management amid capital flow volatility,” it said.
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