felipe m medalla : central bank independence and fiscal prudence hallmarks of philippine economic development speech by mr felipe m medalla, governor of bangko sentral ng pilipinas ( bsp, the central bank of the philippines ), at the fitch ratings annual sovereign review joint economic team meeting, manila, 7 march 2023. * * * let me start by saying that the philippine central bank is an independent central bank. and this is actually embedded in our constitution. of course, our independence has to do with our tools. the government sets the preference between growth and inflation. the government actually sets the inflation target, but it does not tell us [ at the central bank ] how to do [ achieve ] it. our two other mandates are financial stability and the payments system. on the second one, it is a very simple approach : the greater risk a bank takes, the more capital it has to put up. if they [ the bank ] are in trouble, the [ bank ] owners lose their money - not the public [ depositors'money ] - and it has worked very well so far. i will talk very little about the third one, but the importance of that is digitalization. first pillar in focus : preserving price stability in a challenging environment now, my most important topic for you is inflation. we are an inflation - targeting central bank. our inflation target is 2. 0 to 4. 0 percent. we missed the target last year, and we will miss it again this year. but we can easily explain to the public that that [ elevated inflation ] is largely due to supply shocks. incidentally, when you look at the [ inflation figures in the ] past 12 months or so [ since january 2022 ], there were only three months ( february 2022, december 2022, and february 2023 ) when the month - on - month ( m - o - m ) change [ in inflation ] was lower than 0. 4 percent. of course, 0. 4 percent [ m - o - m inflation ] is about 5. 0 percent [ once ] annualized. so, you can see that the supply shocks this year were quite unusual. indeed, there is only one month ( february 2023 ) when the m - o - m change [ in inflation ] was lower than 0. 3 percent, which is the high end of our target [ range ]. by the way, that month is this month ( february 2023 ) - zero. of

the history of the country [ shows that ], somehow, after all the debates, we will reach an agreement that we cannot afford to spend money that is not there, that it is not good to be irresponsible fiscally. it clearly becomes a choice between what is necessary : cutting spending or raising taxes. there were times when it was clear that increasing taxes was better because that meant more for infrastructure spending. i think, politically, that that is the under - driver because we are all aware that we are way behind in infrastructure. we will seek other ways to finance infrastructure if necessary. when the two of us [ referring to finance secretary benjamin diokno ] were first in government, the spread [ between the philippine and united states rates on 10 - year dollar government bonds ] was 600 basis points. there are enough adults in this room, in this country, to know how bad that situation is. so, we [ in the government ] will eventually get consensus [ on how to balance trade - offs between cutting spending or raising taxes in response to lower - than - expected growth ]. i think, over time, even as we debate among ourselves, we will gravitate toward common sense. 4 / 4 bis - central bankers'speeches