Felipe M Medalla: Speech for the 2022 Annual Reception for the
Banking Community
Speech by Mr Felipe M Medalla, Governor of Bangko Sentral ng Pilipinas (BSP, the
central bank of the Philippines), for the for the 2022 Annual Reception for the Banking
Community, Manila, 6 October 2022.
* * *
To friends from the banking community, colleagues from government, partners in
nationbuilding, magandang gabi.
On behalf of the Monetary Board, I officially welcome you to our Bankers' Night. I am
pleased to see you all physically, not virtually. It's been too long.
I've been with the Monetary Board for 11 years and I have not missed a single Bankers'
Night. I have attended exactly nine and each one was always fun and enlightening.
Our being here tonight shows that we are returning to some form of normalcy. My wife
is even happier than I am, and she brought two of our sons and two of our best friends.
Now, going back to being happy to being "close to normal again", we could say the
same thing about the economy. After a sharp contraction that saw the economy
contracting by nearly ten percent in 2020, we've seen a strong recovery - 5.7 percent in
the past year to 7.8 percent in H1 2022. Of course, we could say that we're coming
from a very low base. But at this rate, by this quarter, we would have already recovered
pre-pandemic levels of GDP.
Now, of course, we are facing very difficult challenges. Nobody, six months ago, would
have predicted that the US Fed will be raising policy rates this aggressively. After all,
during those times, the Fed was saying, 'Inflation is transitory. Inflation is not going to
be very high.' It turns out, this outlook was wrong. To make matters worse, we had the
Ukraine war, which caused an increase in the price of our imports, so much so that last
year, our current account deficit was [projected to be] $5 billion. For this year, we
expect it to quadruple [to nearly $20 billion].
This is, to say the least, probably the most difficult time since I joined the Monetary
Board more than a decade ago. Indeed, in some instances, we're probably the facing,
from the point of view of the Philippines, especially for poorer Filipinos, more difficult
times now than in 2008-2009. That said, this is a markedly different picture from the
Asian Financial Crisis wherein lending shrank, compromising growth as a result. Some
who measured growth patterns during that time also noted that we had below-normal
growth for at least five years.
But over the years, and this is where I have to thank my colleagues in government, our
colleagues from the banking sector, colleagues in the Monetary Board, we, I think, were
able to navigate [these challenges].
There was a combination of many things: rising interest rates, depreciating peso, falling
international reserves, and even efforts of the central bank to reduce liquidity by
increasing the issuance of central bank (CB) bills. Thankfully, the new BSP Charter
allows us to now borrow from the public and, data shows that BSP or the central bank
borrowing from the public is a more permanent form of sterilization-than when the
central bank borrows from banks.
[We use a] combination of those three things - 1) policies that affect interest rates, 2)
policies that mean we intervene in the forex market - by the way, we "participate" in the
forex market. This time, it's "intervene" because the level of selling is much higher than
normal - and then, of course, 3) the higher interest rates, which is a result of the policy
rates increasing and the fact that we will be selling more CB bills.
Yet, I'm confident that the economy should do well. I'm confident that by selecting the
correct combination of these three measures, we will be able to navigate.
I'm here to say, 'Thank you.' Thank you to government for resisting populist measures
that would have weakened the economy's fiscal position. Every time I talk to credit
analysts, they ask, 'What have you done?' I tell them, 'Of course, we have done a lot.
But you must remember what we have not done.' The Philippines did not succumb to
temptation of cutting taxes, especially on the most political items like oil. To my
colleagues on the fiscal side - the governor who I'm succeeding is on the other side - I
thank you.
To the governors before me - twelve years of Tetangco; sadly, less than three years of
Nesting, and of course, my colleague Ben Diokno who I've known for decades. From
these three governors, I am operating from a position of strength. That's why I say, with
all these problems - the Fed increasing rates aggressively, price of imports rising, the
economy going such that imports are growing faster than exports - we made a lot of
right moves before.
To Say Tetangco, thank you for having the courage to buy $45 billion of foreign
exchange-despite the fact that at that time, we were not yet allowed to buy from the
public. He knew, deep inside, that allowing the currency to move too much would have
killed the economy. He knew that we had to accumulate the reserves because times
such as this would come.
When I was asked what my favorite statement or quotation is, as central bank governor,
I said, 'I can see very far because I stand on the shoulders of giants.'
Of course, I don't just want to talk about problems; I also want to talk about
opportunities. This is, from the point of view of technology, the best time for improving
and making our payments and settlements system more efficient.
Again, thank you everyone for making this happen - InstaPay, PesoNet, the banks,
electronic wallets which have increased people's access to the financial system. We are
in a good position to be more digital in our payments system. We're also in a good
position to make payments to government more digital. Digital payments to government
have side effects that are quite good. For instance, if your shipment of imports because
of electronic payments are already settled long before the boat arrives, there will be
very little room for last-minute negotiation in Customs.
I'd be remiss if I don't thank the banks. They're being very well-managed. Of course,
there are exceptions, but by and large, our banks are very well-managed. Most of the
exceptions are already gone - thanks to Say and Nesting.
I'll end by saying these are tough times, but we are strong. And with your support, we,
at the central bank, will be able to make the optimal combination of those three
instruments that I talked about.
Thank you very much for being here tonight. I'm so glad to see you again. Magandang
gabi sa inyong lahat.