Philippine President Duterte has a new central bank chief — and investors are worried
“There is a risk that markets ultimately become less confident in the [Philippine central bank’s] independence and willingness to tackle inflation and financial risks,” said Holmes.
In his previous position in the Duterte cabinet, Diokno was said to favor policies that promote growth, such as higher government spending and a low interest rate environment. Those inclinations by a central bank governor would allow Duterte’s administration to raise funds at a cheaper rate for their economic agenda — such as a multi-billion dollar infrastructure initiative called the “Build, Build, Build” program.
But according to Japanese bank Mizuho, such a move doesn’t bode well for the government’s budget discipline, given that the country’s fiscal deficit has widened over the last year. Inflation in the Philippines has also just started to settle down after shooting up last year, and the currency recently rebounded, the bank said in a report.
“In (the) context of Diokno’s previous role as Budget Secretary, his appointment may be perceived as prodding the (central bank) to become more attuned to government financing needs,” Mizuho said, adding that loosening monetary policy before economic conditions in the country stabilize could once again cause inflation to rise and the currency to suffer.