Thursday, August 21, 2025

Remarks before the Bankers Institute of the Philippines, Inc. (BAIPHIL) on August 19 ,2025, Dusit Thani Hotel, Makati City by Monetary Board Member Romeo L. Bernardo


Staying the Course, Steering the Future[1]

 

Good afternoon, colleagues and friends. It’s wonderful to be back with you.

 

Let me begin by congratulating BAIPHIL’s officers on another strong year. Your work—training, connecting, and guiding members—remains vital in keeping the country’s banking system stable and resilient.

 

Your theme “Continuing Partnership to R.I.S.E. in Banking—Resilience. Inclusivity. Sustainability. Engagement.” is timely and powerful.

 

So, let me ask: What does it mean to rise when the ground beneath us keeps shifting?

 

Let me highlight a few key developments that are shaping our path ahead.

 

  • First, inflation is easing. Over the past five months, inflation has come down to less than two percent, thanks to moderating rice and energy prices and actions by the BSP.[2] We expect the full-year average this year to settle near the lower end of our target range. But what matters even more is how people see inflation one year from now. Based on our surveys, expectations remain anchored—people believe inflation will stay low over the next year.[3]

 

  • Second, our economy is growing steadily. GDP expanded by 5.5 percent in the second quarter, placing the Philippines as the second fastest-growing economy in the region.[4] This momentum is supported by a healthy banking sector. Lending continues to grow, and digital financial channels are helping households and firms to continue to invest and spend.

 

  • Third, our banking system remains strong and resilient. We continue to exceed international standards in capital buffers, liquidity coverage, and asset quality. Our non-performing loan ratio is steady at 3.4 percent, and capital adequacy stands at 16.5 percent. Key regulatory reforms—such as the new Capital Markets Efficiency Promotion Act—are expected to deepen our domestic financial markets, facilitating more efficient funding for infrastructure, innovation, and national priorities.

 

  • Of course, we face headwinds. Global trade tensions and lingering geopolitical risks have introduced uncertainty, affecting both emerging and advanced economies. For small, open economies like ours, remaining insulated is difficult—especially with rising U.S. protectionism expected to impact not only trade in goods but also services and remittances. In addition to imposing higher tariffs on its trade partners, the U.S. has introduced a tax on remittances and is now considering measures to curb offshoring.  So far, the overall impact on our external balance has been limited, supported by steady remittance inflows—which have reached nearly US$14 billion as of May this year. Service exports from our IT-BPM industry remain robust and are expected to overtake remittance receipts for the first time this year.

 

  • Finally, we have solid buffers despite these external shocks. Our gross international reserves (or GIR) stand at US$105.7 billion, enough to cover 7.2 months of imports[5] and 3.4 times the country's short-term external debt.

 

These aren’t just good numbers—they show we’re learning to navigate the storms.

 

Let us now break down what R.I.S.E. means in practice.

 

R for “Resilience”

 

Resilience today goes beyond capital buffers and spreadsheets. In a digital world, it means standing firm against cyberattacks, fraud, outages, and even economic sabotage. Operational disruptions in the financial system are escalating.

 

BSP’s cybersurveillance activities show a continued trend in cybercrime-related losses for the first half of 2025.  Prevalent threats target the human element, which includes phishing, card-not-present fraud, and unauthorized access. This indicates attempts by threat actors to continually exploit vulnerabilities of digital financial consumers. Nonetheless, net losses declined notably, driven by improved loss-recovery mechanisms and cooperation among financial institutions.

 

That is why the BSP has taken decisive actions:

 

  1. We rolled out the 2024–2029 Financial Services Cyber Resilience Plan (or FSCRP) on August 6, 2024. The plan is a sector-wide roadmap and strategic framework to strengthen the cyber resilience and maturity of the financial services sector.[6]
  2. We created the Financial Cyber Resilience Governance Council on February 11, 2025, to oversee the FSCRP and facilitate coordination, collective decision-making, and guiding efforts toward a unified and proactive cybersecurity posture.
  3. We updated IT and risk management rules[7]  to help banks respond faster.
  4. We issued guidelines on operational resilience to ensure the continual delivery of critical operations to customers through disruptions. Operational resilience is a critical defense of BSP-supervised financial institutions against cyber threats and climate-related shocks.  

            5. We strengthened KYC and AML standards, including electronic due diligence.[8],[9],[10]

6.              6.  We issued enhanced rules for e-money and digital banks[11],[12]

  1. We introduced a regulatory sandbox for testing innovations under the BSP’s oversight[13]
  2. We rolled out guidelines for the Anti-Financial Account Scamming Act, or AFASA, in May 2025 to crack down on mule accounts and phishing scams.[14]
  3. And we conducted cyber education and awareness initiatives to build the capacity of small and medium-sized financial institutions.

 

We are not plugging leaks—we’re reinforcing the entire system for greater resilience.

 

I for “Inclusivity”

 

One of the most inspiring stories in Philippine banking is our progress in financial inclusion.

 

People who once dealt only in cash—vendors, tricycle drivers, sari-sari store owners—are now part of the digital economy. Thanks to Paleng-QR Ph Plus, now active in 180 LGUs.[15]

 

Even MRT-3 commuters can now tap or scan their way through turnstiles.[16]

 

In 2019, only 29 percent of Filipinos had bank accounts. By 2021, that jumped to 56 percent.[17]

 

But opening an account is just the beginning. MSMEs make up 99 percent of businesses,[18] yet receive less than 3.9 percent of total bank loans.[19]

 

Why? No credit score. No formal income. No paperwork. So, the BSP responded:

 

  • We promoted the Basic Deposit Account to bring more people into the formal financial system.[20]
  • We launched the Credit Surety Fund and Credit Risk Database to help banks lend with confidence.[21]
  • We supported Supply Chain Finance to reach underserved markets.[22]
  • And we introduced the Standard Business Loan Application Form to cut red tape for MSMEs.[23]

 

Having worked in government, in multilateral institutions, and on private boards, I have seen that the best lending decisions aren’t always the obvious ones.

 

Inclusion isn’t charity. It’s smart, long-term banking.

 

S for “Sustainability”

 

We can’t talk about resilience without addressing climate and environmental risks.

 

Floods, typhoons, and droughts don’t just damage property—they disrupt business models, strain credit quality, and challenge long-term economic growth.

 

Here is what the BSP is doing:

 

·         Since 2020, we have issued a series of regulations to equip banks to effectively manage climate, environmental, and social risks. We have shifted our focus from reducing the Philippines’ already negligible carbon footprint (just 0.3% of the global total) to adapting to climate change–driven disasters, such as typhoons and flooding, to which our country is among the most vulnerable. Banks should integrate these risk factors into their corporate and risk governance

·         We also released Circular No. 1185[24] to incentivize sustainable financing. For instance:

Ø  A 15-percent increase in the single borrower’s limit for sustainable projects

Ø  And a zero-reserve requirement for sustainable bonds

 

These incentives will run for two years until January 2026—and we’ve already surveyed banks to gather feedback supporting the policy review.

 

·         We introduced the Philippine Sustainable Finance Taxonomy Guidelines,[25] aligned with national climate goals, emphasizing adaptation as the priority action, and ASEAN Taxonomy, to give banks and investors a common language. Following this, a series of supplementary guidance is being issued to ensure consistent interpretation and implementation of the local taxonomy.[26]

·         We are developing an Adaptation and Resilience Catalogue to guide banks in identifying and classifying adaptation-aligned projects. Through stakeholder input, pilot projects, and innovative financing, we aim to show their viability and build confidence in adaptation investments.

 

So, the question isn’t just, “Are you compliant?” It’s “Is your balance sheet future-ready?” Sustainability is not just a reporting line. It is a survival strategy and a leadership opportunity.

 

Finally, E for “Engagement”

 

Good regulation is not one-way. The BSP does not regulate from a tower. We engage, listen, and adapt.

 

We issue exposure drafts, hold policy dialogues, monitor feedback, and co-develop with the industry. We are active on major social media platforms to stay connected with the public. We even have a chatbot to assist financial consumers 24/7 and a mobile app for the most convenient access to BSP resources.

 

BAIPHIL has long played a role in this. My challenge to you: play an even bigger one. Don’t just learn the rules. Help shape them.

 

To the new Board: you step into leadership at a defining moment. My wish for you is simple: rise not just to meet the future, but to shape it.

 

Mabuhay ang BAIPHIL. Thank you very much.

 

 

                                                                          ###

 


[1] Speech of Monetary Board Member Romeo L. Bernardo for the Bankers Institute of the Philippines, Inc. (BAIPHIL) on its 85th anniversary and Induction Ceremony on  August 19 ,2025, Dusit Thani Hotel, Makati City.

[2] Inflation eased to 0.9 percent in July, with a year-to-date average of 1.7 percent, below the government’s target range. https://www.bsp.gov.ph/SitePages/MediaAndResearch/MediaDisp.aspx?ItemId=7614&MType=MediaReleases

[3] Households' mean 12-months-ahead inflation point forecasts eased to 3.7 percent in Q2 2025, from 3.8 percent in Q1. Likewise, firms' mean forecasts decreased to 3.0 percent, from 3.4 percent in the previous quarter. Source: Consumer Expectations Survey (CES), Business Expectations Survey (BES).

[4] The Philippines’ Q2 2025 real GDP growth is next only to Vietnam (8.0 percent); and higher than China (5.2 percent); Indonesia (5.1 percent), Malaysia (4.4 percent) and Singapore (4.3 percent).

[5] Country’s foreign reserves settle at US$105.7 billion in July 2025 Bangko Sentral ng Pilipinas Media and Research Press Releases 

[6] BSP Launches the 2024 - 2029 Financial Services Cyber Resilience Plan https://www.bsp.gov.ph/SitePages/MediaAndResearch/MediaDisp.aspx?ItemId=7199

[7] Circular No. 808 on IT Risk Management Framework, Circular No. 982 on Information Security Risk Management Framework, Circular No. 1137 on Outsourcing Framework, and Circular No. 1140 on Fraud Management System

[9] Circular No. 1182 dated 10 November 2023 https://www.bsp.gov.ph/Regulations/Issuances/2023/1182.pdf

[10]  Circular No. 1193 dated 29 April 2024 https://www.bsp.gov.ph/Regulations/Issuances/2024/1193.pdf

[11] Circular No. 1105 dated 02 December 2020, as amended by Circular Nos. 1154 and 1205 dated 14 September 2022 and 26 December 2024, respectively. https://www.bsp.gov.ph/Regulations/Issuances/2020/c1105.pdf

[12] Circular No. 1166 dated 7 February 2023 https://www.bsp.gov.ph/Regulations/Issuances/2023/1166.pdf

[16] BSP: Tap-to-pay & scan-to-pay in MRT-3 to drive digitalization transformation https://www.bsp.gov.ph/SitePages/MediaAndResearch/MediaDisp.aspx?ItemId=7598&MType=MediaRelease

[20] Introduced by the BSP in 2018, the BDA aims to meet the needs of the unbanked and low-income sector for affordable and easy-to-open bank accounts. It has a low opening deposit requirement of PHP100 or less, simple identification requirements, no maintaining balance requirement, and no dormancy charges.

[22] Input from FSS

[25] Circular No. 1187 dated 21 February 2024. https://www.bsp.gov.ph/Regulations/Issuances/2024/1187.pdf







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Thursday, July 17, 2025

Keynote Message: Outstanding BSP Stakeholders Appreciation Ceremonies 2025

 

One Goal, Many Hands[1]

Keynote Message

Outstanding BSP Stakeholders Appreciation Ceremonies 2025
BSP Head Office,18 July 2025

 

 

Good morning everyone. I have been tasked to fill in for the Governor, who I know you were all expecting to speak at this event. Think of me as the BSP’s contingency reserve – called in only when the main asset is under the weather.

 

 I promise this is well within prudential limits.

 

To our partners from the public and private sectors and to my colleagues from the Bangko Sentral ng Pilipinas, good morning.

 

It is an honor to welcome you all to the 2025 Outstanding BSP Stakeholders Appreciation Ceremonies.

 

This tradition began in 2004 as a simple gesture of gratitude to the respondents of our Business Expectation Survey. Since then, it has grown into a meaningful platform to recognize organizations that help us fulfill our mandates and extend our reach.


You come from different yet equally critical sectors such as banking and finance, local government units, professional and industry associations and beyond.

 

Each of you contributes to our shared mission of ensuring efficient currency circulation, promoting financial inclusion, and guarding against illegal financial practices. Your roles may differ, but your impact is profound.

 

Some go even further. Since 2011, the Bureau of Fire Protection, with the help of BSP, has trained 160 fire officers to deliver financial literacy sessions, educating over 3,100 new recruits.[2] This kind of initiative shows how far collaboration can go.

 

This reminds us that while we come from different backgrounds and bring diverse perspectives, meaningful results happen when we work together.

 

I am reminded of a striking moment in history. In 1939, as war broke out across Europe, two men stood watch atop of King’s College Chapel in Cambridge to protect it from German bombs.

 

They were John Maynard Keynes and Friedrich Hayek. Both giants in economic thought whose views were famously diametrically opposed. Keynes championed government intervention to stabilize markets, while Hayek warned against it, believing in free-market principles. Yet that night, they worked side by side, united by a bigger cause.

 

To our awardees, thank you for your dedication, your courage, and service.

 

Congratulations, and mabuhay kayo!

 

(END)


[1] Speech of BSP Governor Eli M. Remolona for the OBSAC 2025 on 18 July 2025, at the Assembly Hall, BSP Head Office

[2] From OBSAC briefer: “In 2024, BFP successfully rolled out financial education programs to 3,101 newly recruited Fire Officer 1 personnel and 25 non-uniformed personnel, demonstrating its dedication to ensuring financial literacy across all levels of its workforce. Additionally, 554 personnel participated in the ‘Credit Card 101’ session on 19 July 2024, further expanding the reach of financial education initiatives.  A total of 164 BFP trainers underwent a ‘Training of Trainers’ workshop, equipping them to effectively deliver financial education programs to their colleagues.”

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Thursday, May 1, 2025

The looming trade war: What US tariffs mean for the Philippines

May 2, 2025 I 12:30am  

BusinessWorld By Romeo L. Bernardo

 

THE LATEST World Economic Outlook from the IMF paints a sobering picture of the global economy. Growth projections have been revised downward, with global growth expected to drop to 2.8% in 2025, around half-a-percentage point decline. This is largely attributed to escalating trade tensions, including the sweeping tariffs introduced by President Donald Trump, which have brought effective tariff rates to levels not seen in over a century. It also creates inflation pressures for some countries, notably the US. Unless anchored by credible monetary policymaking by the Fed, the US runs the risk of having both low growth, even a recession, as well as high inflation. In a word — stagflation — a phenomenon familiar to those of us who were around in the 1970s, that had serious spillovers globally, triggering the Latin American and Philippine debt crisis.

But even if stagflation does not happen, the global uncertainty will exact a heavy toll all around. Even the US dollar and US treasuries have not been exempt. For the first time, it lost value in a crisis, as countries and people lost confidence in the US and the dollar as a safe haven.

The world remains in flux, but it seems less alarming than when Trump said he wanted Powell fired. Nonetheless, we need to wait and see what Donald has to say as the 90-day pause counts down.

The Philippines is not spared from this global turbulence, though its outlook is less worrisome in relative terms, compared with other emerging markets. Coming from a period of strong growth, most forecasts anticipate, at most, a one-percentage-point impact on projected growth, still over 5% in most cases, including the IMF and World Bank. Fitch Ratings has also just affirmed our stable BBB credit rating. This resilience is supported by our lower exposure to trade shocks, reliable earnings from overseas Filipino workers and business process outsourcing, a more favorable treatment under the Trump tariff regime including lower tariffs at 17% and global exemptions of all semiconductors and electronics, a manageable fiscal position, a crisis-tested financial system, adequate foreign exchange reserves and an independent — and if I may say, a most competent — central bank.

Inflation has also been trending downward to 2-3% from the high of 8% in 2023, allowing BSP to lower policy rates by 100 basis points to date. The governor has signaled more easing for the rest of the year as inflation is expected to be within our target range, and will help compensate for the deflationary effects of the trade war. Lower prices of oil, coal, fertilizers, some food imports — a side effect of lower global demand due to tariffs — will support this stance.

We do have to worry about a few things. First, the rules-based global trading system: The trade war challenges the principles that have underpinned international trade for decades. It undermines the predictability and stability that businesses rely on for cross-border transactions. The imposition of tariffs and retaliatory measures disrupts established norms and can lead to a fragmented global trading environment, with deleterious effects on investments and long-term growth and development, as Governor Remolona observed in a recent IMF panel.

Second, this global disorder, unless sorted out soon, primarily between the US and China, can evolve into a somos o no somos world.

As spheres of influence built around security, technology (especially AI) and trade are forcibly made exclusive, the cost of global disruption will be even more elevated and especially challenging for countries like the Philippines, who have deep and multifaceted economic ties with both the US and China.

The desire to contain China by US authorities enjoys bi-partisan support, so we may all be caught in a Thucydides Trap scenario over the medium to long term. Even if the tariffs are rolled back, we shouldn’t expect that things will revert to the pre-Trump status quo.

Allow me to conclude by sharing a few tentative suggestions on how we, as a country and people, might prepare ourselves to cope — and, I dare say, maybe even thrive — during these exciting times.

First, we should build financial resiliency by, for example, sustaining fiscal consolidation, upscaling systemic risk vigilance — including preparing and maintaining a ready crisis management playbook — and ensuring that our foreign exchange reserves remain ample. Second, we should enhance food and energy security. Third, we should strengthen our ties with ASEAN. This includes the aforementioned cooperation in the food and energy sectors where   our neighbors are exporters, as well as advancing financial cooperation (e.g., currency swap arrangements) and pursuing third-party trade negotiations.

Fourth, we should negotiate for compensatory concessions from the US, such as through friend-shoring initiatives or the establishment of a free trade agreement. (We need to remind ourselves what Dr. Kissinger said — It may be dangerous to be America’s enemy, but to be America’s friend is fatal.) Fifth, we should diversify our economic, financial and trade relationships with a broader set of countries and institutions.

Sixth, we should exploit our relative tariff advantage in the US market by attracting investors, especially those already operating in the Philippines, to consider future expansions here. Seventh, we should forge national cohesion, both politically and economically. In particular, economically via public-private collaboration, as we did during the COVID-19 crisis.


 

Romeo L. Bernardo is a member of the Philippine central bank’s Monetary Board (MB). The views expressed here, which he delivered in a speech before the Asia Society on April 30, do not necessarily reflect those of the MB or the Bangko Sentral ng Pilipinas.

globalsourcepartners.com

romeo.lopez.bernardo@gmail.com

 

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Tuesday, February 18, 2025

Keynote remark for the FMAP Induction, Feb 18, 2025


Twists and Turns in the Year of the Snake


Introductory remarks


Good afternoon, everyone!


It’s good to see many friendly faces. Though I sometimes see that as a mixed blessing. As Luke said in 4:24 , one cannot be a prophet in one’s own land.


I thought to title my talk “Twists and turns in the year of the snake”. The snake seemed a particularly apt Chinese astrological animal at this time of unprecedented uncertainty, where one can be unsuspectingly bitten, or to mix metaphors, be tempted by forbidden fruit with tragic consequences. (Though as someone reminded me, if Adam and Eve were Chinese, they would have eaten the snake instead! )


For those who have been entertained by my briefings as an economic political analyst, I apologize in advance for my greater reserve. It’s not because I am no longer entitled to publicly air my private views— though that’s a consideration. It’s more that being in government teaches one humility. I quote what Henry Kissinger famously said: the longer I am away from government, the more infallible I become. Or an older one from Galsworthy in the 18th century: The degree of idealism is directly proportional to the distance from the problem.


_________


The Year of the Snake is off to an interesting start. Global markets are grappling with the possible repercussions of the ongoing geopolitical fragmentation. Much has already unfolded in the early goings of 2025, and there are bound to be more twists and turns in the the months ahead. Luckily for us, the Philippine economy remains resilient amid emerging risk on both domestic and global fronts.


My talk will be in several parts. First, I will set the stage, the Philippine economy since the pandemic focusing on inflation and growth. Then zoom in on financial and monetary conditions and actions we have taken to make it more resilient. Finally, I will try to crystal ball the uncertainties that face us this year and beyond: Trump 2.0, potential AI disruption, domestic politics.


Setting the stage: the Philippine economy since the pandemic


I. INFLATION DEVELOPMENTS


The BSP remains committed to its primary focus on 

inflation. We have made significant progress in this 

area, with headline inflation decreasing from a peak of 8.7 percent in January 2023. Measures of underlying inflation have also declined. Furthermore, inflation expectations remain within the target range.


It is tempting to declare victory over inflation, given how our projections continue to indicate within-target inflation through 2026 Nonetheless, we remain cautious.


During the policy meeting this February, estimates indicate aslight uptick in the baseline inflation forecasts. Our baseline forecast for average inflation is now 3.5 percent for both 2025 and 2026.


Incorporating risk factors, inflation could be steady for 2025 but could increase to 3.7 percent for 2026. This is important since monetary policy works with a lag and could mostly affect inflation in 2026.

 

We will continue to monitor the upside risks that may emanate from higher utility charges.




 

II. ECONOMIC DEVELOPMENTS


Turning to growth. The broader picture shows that the Philippine economy has emerged from the pandemic and the recent inflation episode in a relatively favorable position. The Development Budget Coordination Committee (DBCC) (where the BSP is a resource institution) sees growth reaching 6-8% in 2025-2026.


I referenced the pandemic primarily as a point of comparison. For context, at the start of the pandemic in 2020, I was the Philippine advisor for GlobalSource, an international network of country analysts providing on-the- ground macroeconomic and political risk assessments. Our outlook then was for GDP to contract by around 7 percent for the full year. Others were saying the economy could contract by around 10 to 15 percent. The actual outturn, as we know, was negative 9.5 percent.Looking back, the country's fundamental strengths provided the government the flexibility it needed to respond to the pandemic, allowing the economy to avoid a direr outcome.


In the post-inflation episode, one of the most salient narratives on growth is that the economy will likely continue to grow at a moderate pace through 2026. Part of the story is due to subdued investments, which was an expected effect that followed a record tightening of monetary policy. As you know, the transmission of monetary policy has long lags [12 to 15 months] so the BSP’s recent shift to an easing cycle has yet to fully support a meaningful increase in investment.


The pandemic has also left a mark on the economy. The country’s annualized real GDP has already recovered above its pre-pandemic level in Q3 2022, However, it remains below its pre-pandemic trend level reflecting the long term scarring effects of the pandemic. Prior to the pandemic, from 2009 to 2019, the country’s GDP was growing robustly at an average of 6.0 percent. Our latest forecasts suggest that the projected level of GDP through to the fourth quarter of 2026 will likely remain significantly lower compared to its pre-pandemic trend.




 

Meanwhile, potential output growth also decelerated as consumer spending slowed last quarter and as manufacturing growth remained sluggish amid subdued global demand due to political tensions and the slow recovery of advanced economies. This, however, was partly tempered by the improvements in labor market conditions as unemployment and underemployment numbers continued to drop during the quarter.


Labor productivity has yet to bounce back to pre- pandemic average levels. Between 2012-2019, the country’s labor productivity grew by an average of about 5.0 percent. However, from 2021-2024, following the pandemic, it has grown by an average of only 0.7 percent. This is despite the continued drop in unemployment and underemployment


Comparison of Labor Productivity and Ave. Real Minimum Wage Growth for Pre- and Post-Pandemic Periods




The government has laid out plans to spur economic growth by, among other things, accelerating infrastructure investments(at 5 to 6 percent of GDP annually), enhancing the ease of doing business, and boosting national competitiveness. The “Build Better More” infrastructure program likewise boosts partnership with private sector stakeholders for key infrastructure projects. The government will also invest heavily on human capital and in projects that align the Philippine workforce with the fast-evolving, tech-driven job market.


The country’s fiscal position remains resilient.Outstanding government debt jumped by 20 percent post-pandemic (from end-2022), resulting in a debt-to-GDP ratio of about 60.7 percent (as of December 2024). This highlights the importance of the fiscal consolidation being pursued by the national government over the medium term, to ensure that debt levels are sustainable.

  

 

The S&P Global seemed to have recognized this position of strength when it raised the country’s sovereign rating from stable to positive in November. Our fiscal authorities will need to ensure steady progress in critical fiscal policy reforms, the plugging of revenue leakages, and improvements in the absorptive capacity of implementing agencies.


As for the potential impact of recent global developments, I believe the Philippine economy has more than enough buffers. Our international reserves (GIR) continue to be a reliable backstop against external shocks. As of end-January 2025, our reserves are equivalent to 7.3 months’ worth of imports of goods and payments of services and primary income; and about 3.6 times the country’s short-term external debt based on residual maturity. Although the current account deficit is expected to widen moderately this year against a backdrop of improving investment and infrastructure spending, it remains financeable, as we continue to see steady structural inflows of foreign exchange via overseas Filipinos' (OF) remittances, business process outsourcing (BPO) revenues, tourist receipts, and strong foreign direct investment (FDI) inflows.


My main worry is related to our export earnings. A narrow goods export base consisting mainly of electronics makes that sector overly sensitive to changes in global electronics demand. Electronics, which comprised about half (49.8 percent) of Philippine exports in 2024, faces a slowdown due to the global inventory correction in the semiconductor industry and a less-competitive product mix that is concentrated largely on legacy products and lower-end components. As global demand shifts towards new electronics for energy transition and artificial intelligence (AI), Philippine semiconductor exports are less aligned with high-demand products.


Turning to another growth area, the BPO sector is being disrupted by the emergence of generative AI,(adding another layer of complexity on top of Trump's protectionist bent). BPO industry insiders seem confident that the Philippines can adapt, move up the value chain and maintain growth at around 6 percent. But at the same time, they admit of skills shortage that could constrain expansion over the medium term. Apart from rising operational costs (e.g., rent, wages, training costs), increasing global competition from other outsourcing countries (such as Malaysia, Poland, and Africa) could also be a headwind to the industry’s high growth trajectory. Nonetheless, growth in the IT-BPM industry will be supported by further AI integration. Moreover, increasing demand for healthcare information management also positions the country as a global leader in healthcare outsourcing.

 

 

III. FINANCIAL AND MONETARY CONDITIONS


During the period of tightening of policy rates, the banking sector has maintained solid performance. This is demonstrated by a continued uptrend in assets, loans, deposits, and earnings, along with reasonable provisions for non-performing loans (NPL). As concerns over inflation abate, the BSP has gradually shifted to a less restrictive stance. Our latest data, as of December 2024, indicates thatthe “pass-through” of the BSP’s cumulative 75-bp reduction in policy rates in 2024 has been generally stronger for short-term bank lending rates and moderate for medium- to long-term lending rates.


In our view, monetary policy transmission will be made more efficient with a shorter lag time on this pass- throughby improving depth and liquidity in the local capital market, starting with the money market.


To this end,capital market development is a crucial priority in the BSP’s medium-term strategic plans. A key objective is to develop alternative sources of funding to corporates, and even to smaller businesses that may lack collateral. If there are alternative funding sources, then thecredit risk largely carried by the banking sector will be diversified,ultimately enhancingfinancial stability. A deep capital market can also fund businesses with higher risk profiles that the banking sector might not traditionally  serve. In this way, capital markets can also boost innovation.


This is where improving the benchmark yield curve plays a crucial part in strengthening overall price discovery primarily in the money market and in other segments. As you know, on 18 November 2024, the Bankers Association of the Philippines (BAP) launched an enhanced Peso interest rate swap (IRS) product based on the BSP’s variable overnight reverse repurchase rate. A revitalized PHP IRS market is expected to support thecreationof an interest rate “swap curve” that could serve as a reference benchmark for pricing corporate bonds, mortgages, and bank loans.


The BSP is also working with the BAP to expand the GS repo market. The goal is to transform transactions in the BSP’s RRP and OLF facilities into “real” repos, with the adoption of the Global Master Repurchase Agreement (GMRA) and the actual delivery of collateral government  securities. By enabling the transfer of legal ownership of securities as collateral, banks can use the securities for trading with each other or to meet regulatory requirements. This, in turn, could support pricing and facilitate more trading of securities in the secondary market. In addition to deepening liquidity and facilitating bond price discovery, this will help develop hedging tools for better risk management and attract local and foreign investors  to the Philippine government securities market by reducing credit risks and financing costs.


Future adjustments in the reserve requirement ratios (RRRs) will also ultimately enhance monetary policy transmission. As we gradually dial back monetary policy restriction, we see that further reductions in the RRR will appropriately support our continuing shift towards more market-based monetary operations.


We also want to minimize financial system distortions in the form of high intermediation costs and transaction fees, so that banks can more efficiently channel their funds towards productive loans and investments. To this end, bringing the Philippines’ reserve requirement ratio (RRR) in line with its peers in the region continues to be a long-run goal.


[AMLA Greylist] In 2021, the Philippines made a high-level political commitment to work with the Financial Action Task Force (FATF) to strengthen the effectiveness of its anti- money laundering and combating the financing of terrorism (AML/CFT) regime. At its October 2024 plenary, the FATF initially determined that the Philippines has substantially completed its action plan, warranting an on- site assessment to verify that the implementation of AML/CFT reforms has begun and is being sustained.

 

The Philippines has addressed the 18 action plan items that have kept the country in the greylist. The FATF’s Asia/Pacific Joint Group (APJG) visited the Philippines in January to confirm this assessment and verify the sustainability of the AML/CTF reforms. The removal of the Philippines from the greylist could potentially improve the credit rating and expand foreign investments.


IV. DEALING WITH UNCERTAINTY (Impact of Trump policies on the Philippine Economy and other domestic concerns)

Policymakers must navigate uncertainty, remaining nimble to evolving economic conditions. The landscape of external risks arising from policy uncertainty, particularly from Trump 2.0, calls for increased vigilance against potential supply shocks and a global growth slowdown. If these early weeks of the year are any indication, we may need to brace ourselves for more twists and turns this 2025. Perhaps the big question on everyone’s minds at the moment is just how far this looming trade war could go and how much of a blow this could be to the global economy.


To recall,during the first Trump administration (2017- 2020),the US-China trade conflict led to tariffs on over US$500 billion worth of goods in both economies. Between September 2018 and December 2019, —before the Phase One deal was announced—ASEAN+3 exports contracted significantly after previously growing at an average rate of 10 percent.


The Philippines was largely insulated from these trade tensions due to its low participation in global trade and value chains. Despite close trade ties with the US, the Philippines also did not benefit much from the US-China tariffs, unlike Vietnam and Mexico.


In 2023, the Philippines’ trade surplus with the US was at US$3.1 billion (equivalent to 0.7 percent of GDP), and US$3.2 billion in the first ten months of 2024. This small surplus makes it less likely to face targeted US tariff.


However, the anticipated higher tariffs in other countries, particularly China, could impact Philippine trade, by fragmenting global supply chains. This highlights the need for the Philippines to strengthen trade relations with the US through a bilateral Free Trade Agreement (FTA) and other sectoral agreements.


The country’s IT-BPM industry, with 70 percent of its market in North America (predominantly the US), faces challenges under a potential Trump 2.0 administration. There is reason to be concerned: during Trump’s previous term, growth in Philippine BPO earningsslowedsharply to 2.5 percent in 2017 and 3.9 percent in 2018, from 12.3 percent in 2016. US firms offshore have also indicated their plans to move operations closer to the US, either through reshoring or relocating to politically stable or geographically convenient countries.


Nevertheless, the possible decline in US outsourcing demand may be partially offset by the industry’s expansion in Europe and Asia Pacific, each of which accounts for about 15 percent of the country’s total IT-BPM market as of 2023.


On the local front, we only need to open the front pages of the newspapers to appreciate the looming risks that may impact the economy not just this year but beyond. Though 2025 is only on senatorial and local elections, it is shaping up to be an existential contest among the protagonists, with profound consequences on our country’s medium term domestic and foreign policy (including on super power conflict) and our future.

 

 

V. CLOSING STATEMENT: PATH FOR MONETARY POLICY


I will conclude by explaining the rationale for our recent decision. While the latest forecasts point to within-target inflation, evolving risks to the outlook for inflation and growth as well as elevated policy uncertainty over the external environment warranted a pause in monetary policy easing at this juncture.


The BSP continues to be attentive to the risks to our inflation outlook, and we continue to support the government’s direct initiatives to address supply constraints and improve agricultural productivity to help mitigate price pressures over the long run.


To reiterate, the BSP will maintain its measured approach to monetary policy easing settings, as it continues to observe the impact of prior monetary policy adjustments on the economy). The BSP will remain data-dependent in deciding on the pace and timing of further reductions in the policy rate. With all these challenges on the horizon, the BSP is geared towards ensuring that the country remains resilient across a wide front. As always, the BSP’s policies and initiatives are centered on delivering on its mandates.


In closing, while the Philippine economy continues to face many challenges, its fundamental strength and resilience remain clear. We are on the brink of new opportunities,and the BSP, along with the country’s economic managers, will continue to push for the progress that we want to achieve.


The good news? The last mile of our battle against inflation has turned in our favor. But it remains to be seen how the current geoeconomic shifts will impact us. Whether it leads to the best or worst of times, no one knows at this point. If Dickens were around today, he might sum it up like this:


"It was the best of times, the worst of times; a season of innovation and disillusionment; an age of connection, yet division; a moment of climate urgency, trumped by escalating chaos; AI at our fingertips, but truth fading; unity promised, but discord reigning; progress made, hope sought, but uncertainty looms.”


And this, as we know, is the landscape of risk and opportunities that the market will navigate in the year ahead.


Maraming salamat po!


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