Moody’s Investors Service considers both the rice tarrification law and the amendment in the Bangko Sentral ng Pilipinas (BSP) Charter as "plusses" that will further strengthen the central bank’s capacity.
The two measures were among those signed into law by President Rodrigo R. Duterte last February 15. “(These) will enhance macroeconomic and financial stability, a credit positive for the sovereign,” the debt rater said in a report dated February 23, 2019.
Economic managers pushed for rice tarrification to liberalize rice importation, ensuring adequate supply in the country and thus, prevent shortages. The law, which is expected to become effective on March 5, is seen to help prevent a repeat of last year's inflation surge.
Prior to this, the government used the minimum access volume (MAV) scheme.
Authorities project the tarrification to reduce inflation by around 0.7 percentage points.
Rice, which is the Filipino's staple food, accounts for about 9 percent of the consumer price index (CPI). “We expect the expected increase in the volume of rice imports will diminish the price volatility of rice, helping insulate Filipino households’ consumption to adverse agricultural shocks,” it said.
Meanwhile, the amendment of the BSP Charter expands the central bank’s supervisory oversight over non-bank financial institutions (NBFIs) The report said this “will enhance financial stability given the linkages between the banking system and these entities (NBFIs).”
The Charter amendment also gives the BSP authority to issue its own debt paper again, which Moody’s said will provide the central bank “another tool to fine-tune liquidity management and improve the effectiveness of monetary policy.” It also removed money supply and credit levels as basis for determining monetary policy.
“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 added.