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Economy

Duterte names budget chief Diokno as central bank head

New governor assumes office as inflation falls to one-year low

Budget Secretary Benjamin Diokno arrives as an outsider at the Philippines' central bank. (Photo courtesy of the Department of Budget Management)

MANILA -- President Rodrigo Duterte has appointed Budget Secretary Benjamin Diokno as the Philippines' new central bank governor, surprising observers who had expected the choice of an insider to manage inflation and set policy.

On Tuesday, the new governor was greeted with news that inflation had slowed to within the government's 2%-4% target for the first time in a year. Inflation in February fell to 3.8% from 4.4% the previous month, according to the Philippine Statistics Authority.

This raises the prospects of rate cuts this year, as Diokno is known to be in favor of looser monetary policy.

Despite softening commodity prices, Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said: "We may continue to consider our current monetary policy settings as appropriate given the emerging risks both here and abroad."

The central bank jacked up benchmark rates by 150 basis points last year to 4.75% in a bid to combat rising inflation. Market's welcomed the Tuesday's data, with the Philippine Stock Exchange index rising 0.54% as of 10 a.m. local time.

Duterte announced Diokno's appointment late Monday in his weekly Cabinet meeting. His choice bucked the convention of appointing career central bankers to ensure continuity and preserve the independence of the central bank, often described as one of the country's best-run institutions.

Diokno replaces Gov. Nestor Espenilla, who died last month, more than a year after announcing his diagnosis of tongue cancer.

Diokno is expected to take office on Tuesday and serve out the remainder of Espenilla's term until 2023. A statement from the Office of the President said the government expects he will promote reforms to raise the health of domestic financial institutions to international levels.

The local banking industry had widely expected the appointment of one of three deputy governors to head the BSP.

"It is a surprise, but I think the market will adjust accordingly," Union Bank of the Philippines chief economist Ruben Carlo Asuncion told the Nikkei Asian Review, adding that Diokno is a well-trained, knowledgeable and highly respected Filipino economist.

An economist from another local bank who requested anonymity said Diokno's past public statements could signal an easing bias for the country's monetary policy.

"Based on several of his past commentaries on monetary policy, I think he will have a tendency to be a dove, meaning his policy bias is for easing, and he doesn't mind a weaker peso," the economist said.

A dovish central bank chief, the economist said, would bode well for Duterte's ambitious infrastructure program as borrowing costs would fall, helping the government raise funds for roads, airports and bridges.

Finance Secretary Carlos Dominguez said Diokno's appointment brings to the central bank the "elusive combination of seasoned technocrat and professional manager."

"He knows the inner workings of government and industry, and has repeatedly demonstrated the ability to run a large, complex organization with intellectual leadership and a steady hand," Dominguez said.

Diokno inherits a policy rate at its highest in 10 years, after five successive hikes last year aimed at taming inflation that is running at a nine-year high. Consumer prices have started easing in 2019, with the inflation rate expected to return to the central bank's 2% to 4% target range this year and in 2020.

Diokno graduated from the University of the Philippines with a public administration degree in 1968. He obtained his doctorate in economics in 1981 at Syracuse University in New York. He has been Duterte's budget chief since 2016 and also held the same position from 1998 to 2001 under then-President Joseph Estrada.

Diokno has been teaching economics for over 40 years at the University of the Philippines, where he is a professor emeritus.

His predecessor Espenilla rose through the ranks to become central bank governor in 2017, as most governors had done in recent years.

Nikkei staff writer Jun Endo in Manila contributed to this report.

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