Philippines' Rodrigo Duterte Appoints Central Bank Insider as Next Governor -- Update

By Jake Maxwell Watts Features Dow Jones Newswires

Philippines President Rodrigo Duterte named deputy central bank governor Nestor Espenilla as his choice as the bank's next head, appointing an insider in a signal to the market of continuity at the helm of one of Asia's fastest-growing economies.

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Mr. Espenilla is a serving deputy governor at Bangko Sentral ng Pilipinas. He replaces Amando Tetangco, who has spent more than four decades at the central bank including 12 years -- two back-to-back terms -- as its governor.

The appointment is likely to be seen as a relief by investors. Mr. Duterte's anti-American rhetoric, embrace of China and mercurial statements have spooked investors, along with speculation in the market that Mr. Duterte may choose a more politically-favorable but less experienced hand to helm the bank.

"The concern in the market is continuity of policy and of course independence is the other issue," said Emilio S. Neri Jr., lead economist at the Bank of the Philippine Islands in Manila.

Philippines Finance Secretary Carlos Dominguez confirmed the appointment on Twitter. He called it "a very wise choice after a thorough evaluation of the future needs of the country and of all the candidates."

A government spokesman didn't answer a call for comment.

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The Philippines benchmark stock index, which was closed when the news broke, rose 1.5% during Monday trade.

Mr. Espenilla has been deputy governor at the central bank since 2005. His most recent role is as head of its banking supervision unit. He joined the bank in 1981 and is seen by analysts as likely to continue running it in a fashion similar to Mr. Tetangco. He couldn't immediately be reached Monday evening for comment.

"As an insider, his appointment will be seen as a seamless transition of leadership," ANZ said in a note. "The appointment of a central bank insider to a six-year term will be seen positively by the market."

Other publicly-discussed candidates, such as EastWest Banking Corp. Chief Executive Antonio Moncupa Jr., were seen as closer to the government but relative outsiders to the central bank. Mr. Moncupa, who also heads the think tank of Mr. Duterte's Pilipino-Lakas ng Bayan party, was endorsed by the party's leadership in February. Mr. Duterte didn't make clear his own preference at the time.

Mr. Espenilla is set to take on the role as of July 2. He will also face a lengthy confirmation process that is unlikely to be completed before he begins work.

During his term, which straddled three presidencies, the outgoing governor Mr. Tetangco oversaw a period of sustained economic growth in the Philippines, kept inflation below target and cut the bank's benchmark interest rates to a record low.

Separately, Mr. Duterte named a former army general as environment secretary in a move that signals the aggressive clean-mining agenda of his immediate predecessor -- Mr. Duterte's first choice for the job -- is likely to be abandoned. Roy Cimatu, briefly chief of the Philippines armed forces in 2002, will assume the post pending approval by a confirmation committee that last week dismissed Gina Lopez, an environmentalist who had served in the role on an acting basis for nearly a year.

The Philippines saw its sovereign debt rating upgraded several times to investment grade over the last decade, a vote of confidence in both the country's fiscal and monetary policy management.

When Mr. Espenilla takes on the job, he will have to contend with several government policies that could have an impact on the central bank's primary objective of maintaining price stability.

Among them are income tax overhaul plans by the administration of Mr. Duterte, a possible amnesty on inheritance tax and a targeted boost to infrastructure spending to as much as 7% of gross domestic product.

"Inflation appears to be very manageable and that's why the BSP is not trigger-happy," said BPI's Mr. Neri, referring to the central bank by its acronym. "If the passage of the reforms takes place any time soon then that could accelerate the inflationary pressure," he said.

The bank's next monetary policy meeting is set for May 11, when most analysts expect no change to the benchmark overnight reverse repurchase rate, currently set at 3%.

At its last meeting in March, the BSP's monetary policy board said the outlook for inflation "remains manageable, consistent with favorable growth prospects."

Write to Jake Maxwell Watts at jake.watts@wsj.com

(END) Dow Jones Newswires

May 08, 2017 09:59 ET (13:59 GMT)